Part 6

Murphy USA: Must-know outlooks for the company’s performance

Murphy USA, Inc. (MUSA): Base case

The base case portrays a realistic expectation of Murphy’s performance going forward. Below are the assumptions used in the base case scenario:

  • 2103 revenue is projected to be up nearly 5% based on 70 new stores. After 2013, sales are expected going forward at ~2.5% per annum, primarily through the addition of 45 new stores per year and no volume changes per store.
  • Gross margin is expected to be 5.50% in perpetuity.
  • EBITDA (earnings before interest, tax, depreciation, and amortization) margin is expected to be maintained at 1.9%, which is in line with the company’s three-year average, which experienced some volatility in fuel margins.
  • Cash taxes are expected to be 35%.
  • No dividends or share repurchases considered.

MUSA Base Case ValuationEnlarge Graph

 

Upside case

The upside case portrays a strong five-year forecast for the company when compared with the base case forecasts. Below are the assumptions used in the upside case scenario:

  • 2103 revenue is projected to be up nearly 5% based on 70 new stores. After 2013, sales are expected to grow at ~2.9% to 2.5% per annum, primarily through the addition of 50 new stores per year and no volume changes per store.
  • Gross margin forecasted to remain at 5.70%, which is in line with many prior years.
  • EBITDA margin expected to total 2.1%, which is slightly above the three-year average yet highly achievable.
  • Cash taxes rate of 35.0%.
  • No dividends or share repurchases considered (very conservative).

MUSA Upside Case ValuationEnlarge Graph

Stress case

The stress case portrays a scenario in which Murphy does not deliver on its current objectives. Below are the assumptions used in the stress case scenario:

  • 2103 revenue is projected to be up nearly 5% based on 70 new stores. After 2013, sales are expected to grow at 1.1% per annum primarily through the addition of 50 new stores per year and no volume changes per store.
  • Gross margin forecasted at 5.25% for 2013, then to decline to 4.75% in 2014 (based on increased supply costs), 5.0% in 2015, and normalize at 5.50% thereafter.
  • Cash tax rate of 35.0%.
  • No dividends or share repurchases considered.

MUSA Stress Case ValuationEnlarge Graph

The Market Realist Take

According to the latest estimates, the company anticipates $4.95 billion in sales for Q3 2013 and an EBITDA of $62.50 million. Gross margin is forecast at 4.8% for both 3Q and 4Q 2013. EV/EBITDA is forecast at 5.29% for FY 2013 and 6.23% for FY 2014.

Murphy’s competitors in the convenience store space include Susser Holdings Corporation (SUSS), Casey’s General Stores (CASY), Alimentation Couche-Tard (ATD), The Pantry, Inc. (PTRY), TravelCenters of America (TA), and CST Brands, Inc. (CST)—spun off from Valero (VLO) in April.

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