Murphy USA Earnings: Solid Financial Marks Propelled by Continued Strength in Fuel Margin

We don't plan to change our $420 fair value estimate after narrow-moat Murphy USA delivered strong second-quarter results that were mostly in line with our expectations. The firm's EPS expanded 15% to $6.92 (versus our $6.99 forecast), driven by continued strength in fuel profits. Fuel margin per gallon improved to nearly 32 cents (up from 29.5 cents last year and slightly better than our forecast for about 31 cents), and management reaffirmed its view that fuel profits should prove structurally higher than prepandemic levels as independent convenience stores continue to grapple with higher operating costs. We share in management's sentiment as gasoline demand has mostly flattened in the US and independent operators lack the requisite scale and distribution expertise to build a differentiated assortment of in-store merchandise, thus solidifying their reliance on fuel margins to cover rising operating expenses. In contrast, Murphy's highly efficient small box format and real estate ownership has allowed it to better navigate a rising cost environment as it underprices nearby competitors on gasoline while reaping the benefits of an industrywide uptick in fuel margin. Indeed, we forecast Murphy's per gallon fuel margin to remain in the 30-cent range moving forward, compared with about 16 cents in 2019.