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Murphy USA Inc (NYSE:MUSA); My Fair Value Estimate:



·Abbreviations:

o My Estimate of Fair Value (MFV)

o Return on Invested Capital (ROIC)

o Operating Earnings (OI)

o Enterprise Value (EV)

o Price-to-earnings Ratio (PE)

o Liquidation Value = Tangible Book Value (TBV)

o Book Value (BV)


Murphy USA is engaged in the retail motor fuel industry. To me, that’s not particularly relevant. What’s of greatest relevance is the differential between its market value and MFV. But, before we get to those calculations, I measure the stock via a scorecard to highlight indicators that might make the stock more or less likely to be a winner. Correspondingly, pros and cons as I see them.


Pros:

·Shares trade above the 200-day simple moving average

o This shouldn’t matter, but enough people think it does that I give it a little weight…

·The company is cheap using OI/EV (~.11), my preferred relative value measure

·The company appears to have an easy year-over-year OI comparison in the coming quarter

·Operating Profit Margins increased sequentially and year-over-year

·Diluted Share Count is down more than 30% over 5 years


Cons:

· The balance sheet only seems fair, exhibiting negative Net Current Asset Value


Those pros and cons and—more importantly—the company’s average ROIC (~17% over the last 10-years) make it seem likely that the company has durable competitive advantages. So, I deem the company good quantitatively. I am willing to assume—speculate—that durable competitive advantages will allow the company to grow earnings over time and therefore I value the company relative to $493mm OI, my estimate of what the company can reasonably earn over an average year. Given the company’s seemingly fair balance sheet and 5-yr average multiple of PE x 13.3**, I think OI x 8 is a reasonable fair value, which equates to MFV of $63.77.


At a recent price of $278.05, the differential between market value and MFV is -77%, thus shares are overvalued to me.


Conclusion: I put the company on my good company watchlist. While it only generated one con on the scorecard, it’s a big one to me. So, I’m content valuing the company with an 8x multiple and not owning shares unless the price falls dramatically or OI increases dramatically.


My positioning: none


For more information about how and why I designate companies good read here: (https://www.veriteventures.com/post/how-i-value-good-companies)


-V


*Post prepared using data as of 12/15/22

**I’m using the company’s historical PE multiple as a proxy for OI because PE multiples are more readily available from data providers and because I will never pay more than the lessor of 1) OI x 10, 2) OI x the company’s own historical multiple, or 3) the S&P 500’s current OI multiple, which lessens the risk of over overestimating the company’s historical multiple via the PE to OI conversion.

The information in this post has not been audited and accuracy is not guaranteed. The post is for informational purposes only and is not investment advice. Consult a financial professional before making investment decisions. The author’s opinions and positions may change subsequently, without notice.

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