Intrinsic value of Murphy USA - MUSA

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$67.50

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$67.50

 
Intrinsic value

$35.03

 
Up/down potential

-48%

 
Rating

sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MUSA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 2.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -8.69
  4.40
  4.46
  4.51
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
Revenue, $m
  11,595
  12,105
  12,645
  13,216
  13,819
  14,455
  15,127
  15,835
  16,581
  17,368
  18,196
  19,067
  19,985
  20,950
  21,966
  23,034
  24,157
  25,338
  26,580
  27,885
  29,256
  30,698
  32,213
  33,804
  35,476
  37,233
  39,079
  41,018
  43,054
  45,193
  47,440
Variable operating expenses, $m
 
  11,863
  12,392
  12,952
  13,542
  14,166
  14,824
  15,518
  16,250
  17,020
  17,832
  18,686
  19,585
  20,531
  21,526
  22,573
  23,674
  24,831
  26,048
  27,327
  28,671
  30,084
  31,568
  33,128
  34,767
  36,489
  38,297
  40,197
  42,193
  44,290
  46,492
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  11,295
  11,863
  12,392
  12,952
  13,542
  14,166
  14,824
  15,518
  16,250
  17,020
  17,832
  18,686
  19,585
  20,531
  21,526
  22,573
  23,674
  24,831
  26,048
  27,327
  28,671
  30,084
  31,568
  33,128
  34,767
  36,489
  38,297
  40,197
  42,193
  44,290
  46,492
Operating income, $m
  300
  242
  253
  264
  276
  289
  303
  317
  332
  347
  364
  381
  400
  419
  439
  461
  483
  507
  532
  558
  585
  614
  644
  676
  710
  745
  782
  820
  861
  904
  949
EBITDA, $m
  399
  345
  360
  377
  394
  412
  431
  451
  473
  495
  519
  543
  570
  597
  626
  657
  689
  722
  758
  795
  834
  875
  918
  964
  1,011
  1,061
  1,114
  1,169
  1,227
  1,288
  1,352
Interest expense (income), $m
  71
  77
  84
  92
  100
  108
  117
  127
  137
  148
  159
  171
  183
  196
  210
  224
  239
  255
  272
  290
  308
  328
  348
  370
  392
  416
  441
  467
  495
  524
  554
Earnings before tax, $m
  352
  165
  169
  173
  177
  181
  185
  190
  195
  200
  205
  211
  217
  223
  230
  237
  244
  252
  260
  268
  277
  286
  296
  306
  317
  329
  341
  353
  366
  380
  395
Tax expense, $m
  131
  45
  46
  47
  48
  49
  50
  51
  53
  54
  55
  57
  59
  60
  62
  64
  66
  68
  70
  72
  75
  77
  80
  83
  86
  89
  92
  95
  99
  103
  107
Net income, $m
  221
  121
  123
  126
  129
  132
  135
  139
  142
  146
  150
  154
  158
  163
  168
  173
  178
  184
  189
  196
  202
  209
  216
  224
  232
  240
  249
  258
  267
  277
  288

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  154
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,089
  2,020
  2,110
  2,206
  2,306
  2,412
  2,525
  2,643
  2,767
  2,898
  3,037
  3,182
  3,335
  3,496
  3,666
  3,844
  4,032
  4,229
  4,436
  4,654
  4,883
  5,123
  5,376
  5,642
  5,921
  6,214
  6,522
  6,845
  7,185
  7,542
  7,917
Adjusted assets (=assets-cash), $m
  1,935
  2,020
  2,110
  2,206
  2,306
  2,412
  2,525
  2,643
  2,767
  2,898
  3,037
  3,182
  3,335
  3,496
  3,666
  3,844
  4,032
  4,229
  4,436
  4,654
  4,883
  5,123
  5,376
  5,642
  5,921
  6,214
  6,522
  6,845
  7,185
  7,542
  7,917
Revenue / Adjusted assets
  5.992
  5.993
  5.993
  5.991
  5.993
  5.993
  5.991
  5.991
  5.992
  5.993
  5.991
  5.992
  5.993
  5.993
  5.992
  5.992
  5.991
  5.991
  5.992
  5.992
  5.991
  5.992
  5.992
  5.991
  5.992
  5.992
  5.992
  5.992
  5.992
  5.992
  5.992
Average production assets, $m
  1,452
  1,513
  1,581
  1,652
  1,727
  1,807
  1,891
  1,979
  2,073
  2,171
  2,274
  2,383
  2,498
  2,619
  2,746
  2,879
  3,020
  3,167
  3,322
  3,486
  3,657
  3,837
  4,027
  4,226
  4,435
  4,654
  4,885
  5,127
  5,382
  5,649
  5,930
Working capital, $m
  1
  -121
  -126
  -132
  -138
  -145
  -151
  -158
  -166
  -174
  -182
  -191
  -200
  -210
  -220
  -230
  -242
  -253
  -266
  -279
  -293
  -307
  -322
  -338
  -355
  -372
  -391
  -410
  -431
  -452
  -474
Total debt, $m
  670
  688
  751
  817
  888
  962
  1,040
  1,123
  1,210
  1,301
  1,398
  1,499
  1,606
  1,718
  1,837
  1,961
  2,092
  2,230
  2,374
  2,526
  2,686
  2,854
  3,030
  3,216
  3,411
  3,615
  3,830
  4,056
  4,293
  4,543
  4,804
Total liabilities, $m
  1,392
  1,410
  1,473
  1,539
  1,610
  1,684
  1,762
  1,845
  1,932
  2,023
  2,120
  2,221
  2,328
  2,440
  2,559
  2,683
  2,814
  2,952
  3,096
  3,248
  3,408
  3,576
  3,752
  3,938
  4,133
  4,337
  4,552
  4,778
  5,015
  5,265
  5,526
Total equity, $m
  697
  610
  637
  666
  696
  729
  762
  798
  836
  875
  917
  961
  1,007
  1,056
  1,107
  1,161
  1,218
  1,277
  1,340
  1,405
  1,475
  1,547
  1,624
  1,704
  1,788
  1,877
  1,970
  2,067
  2,170
  2,278
  2,391
Total liabilities and equity, $m
  2,089
  2,020
  2,110
  2,205
  2,306
  2,413
  2,524
  2,643
  2,768
  2,898
  3,037
  3,182
  3,335
  3,496
  3,666
  3,844
  4,032
  4,229
  4,436
  4,653
  4,883
  5,123
  5,376
  5,642
  5,921
  6,214
  6,522
  6,845
  7,185
  7,543
  7,917
Debt-to-equity ratio
  0.961
  1.130
  1.180
  1.230
  1.270
  1.320
  1.360
  1.410
  1.450
  1.490
  1.520
  1.560
  1.590
  1.630
  1.660
  1.690
  1.720
  1.750
  1.770
  1.800
  1.820
  1.840
  1.870
  1.890
  1.910
  1.930
  1.940
  1.960
  1.980
  1.990
  2.010
Adjusted equity ratio
  0.281
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302
  0.302

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  221
  121
  123
  126
  129
  132
  135
  139
  142
  146
  150
  154
  158
  163
  168
  173
  178
  184
  189
  196
  202
  209
  216
  224
  232
  240
  249
  258
  267
  277
  288
Depreciation, amort., depletion, $m
  99
  103
  108
  112
  118
  123
  129
  135
  141
  148
  155
  162
  170
  178
  187
  196
  205
  215
  226
  237
  249
  261
  274
  287
  302
  317
  332
  349
  366
  384
  403
Funds from operations, $m
  391
  224
  231
  238
  246
  255
  264
  273
  283
  294
  305
  316
  328
  341
  354
  369
  383
  399
  416
  433
  451
  470
  490
  511
  533
  556
  581
  607
  633
  662
  691
Change in working capital, $m
  54
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
Cash from operations, $m
  337
  310
  236
  244
  252
  261
  271
  280
  291
  301
  313
  325
  337
  351
  365
  379
  395
  411
  428
  446
  465
  484
  505
  527
  550
  574
  599
  626
  654
  683
  714
Maintenance CAPEX, $m
  0
  -99
  -103
  -108
  -112
  -118
  -123
  -129
  -135
  -141
  -148
  -155
  -162
  -170
  -178
  -187
  -196
  -205
  -215
  -226
  -237
  -249
  -261
  -274
  -287
  -302
  -317
  -332
  -349
  -366
  -384
New CAPEX, $m
  -262
  -62
  -67
  -71
  -75
  -80
  -84
  -89
  -93
  -98
  -104
  -109
  -115
  -121
  -127
  -134
  -140
  -148
  -155
  -163
  -171
  -180
  -189
  -199
  -209
  -220
  -231
  -242
  -255
  -267
  -281
Cash from investing activities, $m
  -135
  -161
  -170
  -179
  -187
  -198
  -207
  -218
  -228
  -239
  -252
  -264
  -277
  -291
  -305
  -321
  -336
  -353
  -370
  -389
  -408
  -429
  -450
  -473
  -496
  -522
  -548
  -574
  -604
  -633
  -665
Free cash flow, $m
  202
  150
  66
  65
  65
  64
  64
  63
  63
  62
  62
  61
  61
  60
  60
  59
  58
  58
  57
  57
  56
  55
  55
  54
  53
  53
  52
  51
  50
  50
  49
Issuance/(repayment) of debt, $m
  180
  59
  63
  66
  70
  74
  78
  82
  87
  92
  96
  102
  107
  112
  118
  124
  131
  138
  145
  152
  160
  168
  176
  185
  195
  205
  215
  226
  237
  249
  262
Issuance/(repurchase) of shares, $m
  -323
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -151
  59
  63
  66
  70
  74
  78
  82
  87
  92
  96
  102
  107
  112
  118
  124
  131
  138
  145
  152
  160
  168
  176
  185
  195
  205
  215
  226
  237
  249
  262
Total cash flow (excl. dividends), $m
  51
  209
  129
  132
  135
  138
  142
  146
  150
  154
  158
  163
  167
  172
  178
  183
  189
  195
  202
  209
  216
  223
  231
  240
  248
  257
  267
  277
  288
  299
  311
Retained Cash Flow (-), $m
  95
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -89
  -93
  -98
  -103
  -108
  -113
Prev. year cash balance distribution, $m
 
  113
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  296
  102
  103
  105
  106
  108
  110
  112
  114
  116
  119
  121
  124
  127
  130
  133
  136
  139
  143
  147
  151
  155
  159
  164
  169
  174
  179
  185
  191
  197
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  282
  92
  88
  84
  79
  75
  70
  65
  60
  55
  50
  45
  40
  36
  31
  27
  23
  20
  17
  14
  11
  9
  7
  5
  4
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Murphy USA Inc. operates a chain of retail stores in the United States. The company’s retail stores offer motor fuel products and convenience merchandise. As of January 3, 2017, it operated approximately 1,400 retail stores located primarily in the Southwest, Southeast, and Midwest United States. Murphy USA Inc. was incorporated in 2013 and is headquartered in El Dorado, Arkansas.

FINANCIAL RATIOS  of  Murphy USA (MUSA)

Valuation Ratios
P/E Ratio 11.3
Price to Sales 0.2
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow 33.2
Growth Rates
Sales Growth Rate -8.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 27.8%
Cap. Spend. - 3 Yr. Gr. Rate 10%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 90.2%
Total Debt to Equity 96.1%
Interest Coverage 6
Management Effectiveness
Return On Assets 13.4%
Ret/ On Assets - 3 Yr. Avg. 12.5%
Return On Total Capital 16.7%
Ret/ On T. Cap. - 3 Yr. Avg. 16.4%
Return On Equity 29.7%
Return On Equity - 3 Yr. Avg. 27.7%
Asset Turnover 5.8
Profitability Ratios
Gross Margin 8.8%
Gross Margin - 3 Yr. Avg. 7.5%
EBITDA Margin 4.5%
EBITDA Margin - 3 Yr. Avg. 3.3%
Operating Margin 2.6%
Oper. Margin - 3 Yr. Avg. 2.2%
Pre-Tax Margin 3%
Pre-Tax Margin - 3 Yr. Avg. 2.2%
Net Profit Margin 1.9%
Net Profit Margin - 3 Yr. Avg. 1.6%
Effective Tax Rate 37.2%
Eff/ Tax Rate - 3 Yr. Avg. 36%
Payout Ratio 0%

MUSA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MUSA stock intrinsic value calculation we used $11595 million for the last fiscal year's total revenue generated by Murphy USA. The default revenue input number comes from 2016 income statement of Murphy USA. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MUSA stock valuation model: a) initial revenue growth rate of 4.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5%, whose default value for MUSA is calculated based on our internal credit rating of Murphy USA, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Murphy USA.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MUSA stock the variable cost ratio is equal to 98%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MUSA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 12.2% for Murphy USA.

Corporate tax rate of 27% is the nominal tax rate for Murphy USA. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MUSA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MUSA are equal to 12.5%.

Life of production assets of 14.7 years is the average useful life of capital assets used in Murphy USA operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MUSA is equal to -1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $697 million for Murphy USA - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 37.047 million for Murphy USA is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Murphy USA at the current share price and the inputted number of shares is $2.5 billion.


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COMPANY NEWS

▶ Murphy USA reports 1Q loss   [May-01-17 05:20PM  Associated Press]
▶ Murphy USA Announces Pricing of Notes Offering   [Apr-20-17 06:00PM  GlobeNewswire]
▶ MURPHY USA ANNOUNCES ADDITION TO EXECUTIVE LEADERSHIP TEAM   [Apr-18-17 05:01PM  GlobeNewswire]
▶ Near-Term Uncertainties to Weigh on These Energy Stocks   [Mar-28-17 05:47PM  Investopedia]
▶ Caseys on the Street: Why All the Optimism?   [Mar-03-17 09:06AM  Market Realist]
▶ Can Caseys Return to Growth in 3Q17?   [Mar-02-17 01:35PM  Market Realist]
▶ Hedge Funds Are Selling Murphy USA Inc (MUSA)   [05:48AM  at Insider Monkey]
▶ Murphy USA Announces Addition to Executive Leadership Team   [Aug-30-16 04:31PM  GlobeNewswire]
Stock chart of MUSA Financial statements of MUSA Annual reports of MUSA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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