Murphy USA: Maximizing Growth and Profits through Efficiency

Murphy USA is a gas station and convenience store operator that focuses on minimizing expenses and providing a competitive customer experience. Despite being smaller than some rivals, the company has a strong investment thesis due to its long-term growth and profit potential.

Murphy USA (NYSE: MUSA) has carved out a niche for itself in the competitive gas station and convenience store market by focusing on cost efficiency and providing a strong customer experience. Despite being smaller than some of its rivals, the company has demonstrated a solid investment thesis with long-term growth and profit potential.

Murphy USA operates over 1,700 locations across 27 states, positioning itself as a mid-sized player in the industry. The company competes against giants like Canadian Alimentation Couche-Tard (ATD: CA) and domestic rivals such as Casey’s General Stores (CASY). Murphy USA's strategy revolves around minimizing expenses while offering competitive fuel prices and a great in-store experience. This approach has allowed the company to maintain robust margins and generate exceptional returns on assets, equity, and invested capital.

The company's second-quarter 2025 results highlighted the resilience of its operations. Despite a decline in petroleum sales, merchandise sales grew by 1%, contributing significantly to the bottom line. This growth was further bolstered by supply chain efficiency improvements, which helped operating expenses increase by only 1% YoY despite a 2.5% increase in store count. As a result, net operating profit after tax (NOPAT) increased by 2.3% YoY to $172 million.

Murphy USA's economic moat is narrower compared to its larger rivals but remains competitive within its geographic regions. The company benefits from scale advantages and network effects, particularly through its partnership with Walmart (WMT). Additionally, the Murphy Drive Rewards loyalty program fosters repeat business and customer loyalty.

The company's financial performance is impressive. Over the past decade, Murphy USA has maintained an average gross margin of about 12%, operating margin of 4.5%, and net margin of 2.7%. The company's average annualized returns on assets (ROA), equity (ROE), and invested capital (ROIC) stand at 12%, 64%, and 20% respectively, significantly ahead of its weighted average cost of capital (WACC).

Murphy USA's capital allocation strategy is balanced, with 50% of borrowed funds going to growth projects and 50% to shareholder returns. The company's debt levels have increased due to acquisitions like QuickChek, but its interest coverage remains healthy at around a 7x ratio.

In terms of valuation, Murphy USA's P/E GAAP TTM ratio of 16.4x is considered fair by some analysts, given the company's future cash flow potential. However, the company's valuation could be seen as more attractive compared to its peers in the consumer discretionary sector.

Overall, Murphy USA presents a compelling investment case with its focus on cost efficiency, strong customer experience, and impressive financial performance. The company's growth strategy and economic underpinnings make it a solid choice for investors seeking long-term returns.

References:
[1] https://seekingalpha.com/article/4815713-murphy-usa-fuelling-long-term-returns-through-growth-and-profits