While the crude oil market hasn’t exactly been helpful to gasoline station retailer Murphy USA (NYSE:MUSA) this year, brewing upside catalysts may provide a one-two punch for MUSA stock. On the international front, global demand may rise from China’s traditional travel holiday. Domestically, rising calls from employers to their workers to return to the office should make the downstream energy specialist interesting. Therefore, I am bullish on MUSA.
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China Provides a Possible Spark for Oil Prices
In 2019, The Straits Times reported that some 170 million Chinese citizens enjoyed their holidays overseas. However, when China’s draconian zero-COVID policies reached their peak, this figure fell to less than nine million in 2022.
Therefore, analysts at JPMorgan Chase (NYSE:JPM) stated that the anticipation of a significantly higher volume of air travel explains why economists target jet fuel consumption in China as the single biggest catalyst for global oil demand expansion this year.
To be sure, the spot price of Brent Crude Oil hasn’t been particularly inspiring for investors of hydrocarbon-related assets such as MUSA stock. However, the Times also noted that Chinese travelers should opt for the friendly skies for the Golden Week holiday starting in early May.
The signs offer encouragement, per the news agency. “Overseas ticket searches for Golden Week are 120 per cent of the level in 2019, state media reported,” which cited an estimate from a Chinese multinational online travel firm.
Moreover, Shi Fenglei, a director covering Chinese oil markets at S&P Global Commodity Insights, added that “Mainland China’s domestic jet fuel demand has almost fully recovered, while international jet fuel demand has recovered to close to 70 per cent of pre-Covid-19 levels.”
Though several factors ultimately influence oil prices, Saudi Arabia and other OPEC+ producers demonstrated a clear willingness to prioritize their interests over those of the U.S. and its Western allies, with the oil cartel’s surprise output cuts early this month. Therefore, even with the Federal Reserve’s interest rate hikes, oil could realistically climb higher.
Cynically, such a backdrop could augment the profitability metrics undergirding MUSA stock. As well, higher prices tie into other key narratives for Murphy USA.
MUSA Stock Benefits from Domestic Catalysts
With the international front providing potentially favorable winds for MUSA stock, investors may then look to domestic catalysts. First and foremost, Murphy USA specializes in discount gas stations. Smartly, the company features stations located in close proximity to Walmart (NYSE:WMT) stores. Effectively, Murphy trained its consumer base to associate its brand with low cost.
Looking ahead, should oil prices rise, consumers across the income spectrum (save for the truly rich) may shift their business over to Murphy USA. Therefore, the OPEC+ cuts and the upcoming Chinese holiday season couldn’t have come at a better time.
The second factor to consider regarding the bullish narrative for MUSA stock is the return-to-office narrative. Increasingly, a number of companies have reversed course on their work-from-home policies, requiring either a full return or some hybrid schedule. Fundamentally, this circumstance may change the game for downstream energy players like Murphy USA due to increased commuting.
More importantly, the data backs up the bullish case for MUSA stock. According to the U.S. Federal Highway Administration, vehicle miles traveled hit 270.48 billion in February 2023. That’s a noticeable increase from the 266.42 billion posted in February 2022 and the 245.84 billion posted in the year prior.
With commuting stats trending in the right direction, MUSA stock offers an enticing package.
Great Value May Attract Speculators
Although the broader fundamental catalysts arguably represent the most significant bullish factors for MUSA stock, the underlying financials also offer much food for thought. Specifically, the gas station operator brings an attractively undervalued canvas to the table.
Currently, the market prices MUSA stock at a trailing earnings multiple of 9.93. This ranks better (lower) than 74.36% of the competition. Further, shares trade at a forward earnings multiple of 12.06. In contrast, the sector median stat comes out to 15.22 times.
Moreover, MUSA stock benefits from a consistently profitable underlying business. As well, the company boasts a three-year revenue-per-share growth rate of 30.5%, a figure that might swing higher should higher energy prices boost Murphy’s demand.
Is Murphy USA Stock a Buy, According to Analysts?
Turning to Wall Street, MUSA stock has a Moderate Buy consensus rating based on two Buys, two Holds, and zero Sell ratings. The average MUSA stock price target is $311.25, implying 14% upside potential.
The Takeaway: MUSA Stock Sits in a Prime Position
While MUSA stock encountered a soft start to the year, that might change thanks to brewing fundamental catalysts. On the international front, potentially rising demand from China could lift crude oil prices. In turn, that could set the wheels in motion domestically for Murphy USA.
