Murphy USA (NYSE:MUSA): This Gas Station Stock Looks Very Undervalued

At this point, the bullish case for downstream energy firm Murphy USA (NYSE:MUSA) – which specializes in retail gas stations located close to big-box retailers – practically sells itself. MUSA stock was already looking intriguing, with geopolitics and EV sector demand churning in the right direction. However, red-hot tensions in the Middle East may end up sending shares even higher. I am bullish on Murphy USA based on favorable supply-demand dynamics.

MUSA stock has gained 400% in the past five years.

Relevant MUSA Stock Suddenly Became More Critical

For all the talk from experts that EVs represent the future of mobility, the world continues to run on oil. According to the International Energy Agency, in 2022, the share of EVs relative to total car sales jumped to 14% from 9% in 2021. That’s a big move, yet it also means that the vast majority of people still drive combustion-powered vehicles. Obviously, this framework bodes well for MUSA stock.

After all, Murphy USA focuses on the downstream component of the hydrocarbon value chain. It’s really where the rubber meets the road. So, with most households still dependent on fossil fuels to get to work, school, or other destinations, MUSA stock inherently offers longstanding relevance.

When every other car that you see on the road is electric-powered, panic may be justified. However, such panic seems like a far-off proposal now. EV demand has been sputtering amid stubbornly elevated prices and competitive concerns, especially from hybrid vehicles. Even a price war has not convinced consumers to make the shift to electric-powered mobility.

Adding to the compelling narrative for MUSA stock, Russia’s belligerence in Ukraine presents a tailwind for the hydrocarbon sector. First, there’s no sign that the conflict will come to a resolution soon. Second, Ukraine has developed its own long-range drone weapons, using them to strike Russian energy assets. That has caused both immediate disruption and downwind disruption, as infrastructural repairs won’t happen overnight.

Stated differently, MUSA stock already appeared to be on a path to sustained upside. Now, the tensions in the Middle East boiling over into an unprecedented attack add fuel to the flames.

On Saturday, Iran launched a wave of drones and missiles against Israel. Government officials framed the attack as retaliation for a suspected Israeli strike on the Iranian embassy in Damascus, Syria. Naturally, the concern is that the attack will lead to an extended conflict. In turn, Iran could take disruptive actions, such as blocking the Suez Canal.

Such a situation could easily skyrocket crude oil prices. And if that happens, all other goods may experience price inflation (since the world runs on oil).

Harsh Economic Realities Should Smile on Murphy USA

To be sure, higher product pricing by itself won’t make the provider of said product automatically wealthier. Consumers can always choose to find an alternative offering or not buy it at all. However, this approach doesn’t work with fossil fuels, not with most people still driving around in combustion-powered cars. That’s what separates MUSA stock from many other investment categories.

It really comes down to the harsh economic realities of the fossil fuel industry. Should tensions escalate into a global conflict, many, if not most, investment categories would be at risk of volatility. Higher energy prices translate to higher inflation. It also means that the products we purchase – from food to apparel to consumer electronics – will likely shoot upward.

One day in the future, it may be possible to transport goods via solar-powered trucks. However, that’s not the present reality.

This is all to say that consumers have little choice should oil prices swing higher. Directly and indirectly, households must fork over the money. People will have to make cuts just to pay higher energy prices. Otherwise, not paying those prices means not going to work, which is a non-starter.

For MUSA stock specifically, the underlying enterprise features the advantage of being on or near the lowest rung of the trade-down ladder. As Murphy USA’s website states, its petrol stations are positioned near Walmart (NYSE:WMT) stores. Essentially, it doesn’t get much cheaper than MUSA.

Compared to many other businesses, then, Murphy USA is well positioned to survive and likely thrive on the latest disruption.

It’s Time for a Valuation Adjustment

Right now, MUSA stock trades at 0.4x last year’s revenue. In contrast, the downstream component of the oil and gas space (the refining and marketing businesses) features an average price-to-sales ratio of 0.58x. As circumstances currently stand, Murphy USA is relatively undervalued.

However, it’s possible that shares could be even more discounted. On average, analysts anticipate that revenue in Fiscal year 2024 will land at $21.89 billion. Assuming the same shares outstanding count of 20.81 million, the forward multiple should be around 0.39x.

Still, as the latest jobs report suggested, it’s not out of the realm of possibility that economic activity – despite the many disruptions and headwinds – could increase later this year. Combined with the higher demand for crude oil, the most optimistic sales target of $24.19 billion enjoys some credibility.

Under that scenario, MUSA stock would be trading at 0.35x projected 2024 revenue.

Is Murphy USA Stock a Buy, According to Analysts?

Turning to Wall Street, MUSA stock has a Moderate Buy consensus rating based on three Buys, two Holds, and one Sell rating. The average MUSA stock price target is $423.50, implying 0.8% upside potential.

The Takeaway: Already-Hot MUSA Stock Just Got Hotter

Even without the latest geopolitical flashpoint, MUSA stock has already benefited from tailwinds, particularly supply disruption concerns and poor EV sales. With the Iranian attack, those concerns have been exacerbated. What’s more, consumers can’t sidestep the fossil fuel industry. As the situation devolves, Murphy USA appears to be an undervalued investment.

Disclosure