At the current price of $45, what is the market’s view of Murphy Oil’s future operating performance? Over the next 6 years, Murphy Oil shares will need to reach $76 to achieve average annual stock market performance of 9.0%. Murphy Oil’s stock price will need to reach $89 by 2029 to achieve upper quartile performance.
Executive Summary
- Key Murphy Oil characteristics: high expected growth, high profitability, low financial strength, and low stability. A big positive influence on Murphy Oil’s valuation is its superior Profitability.
- Average valuation, average shareholder returns. Current valuation levels are average relative to the Murphy Oil Peer Group. Recent market returns have tracked the Murphy Oil Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Murphy Oil shares should reach a level of $171 by 2029 — an 26.6% per year total shareholder return. A 2029 stock price of $76 would reflect median performance and a price of $89 would be required to reach upper quartile performance.
- Murphy Oil’s past growth is modestly above average. Historical growth has been high relative to the Murphy Oil Peer Group and forecasted growth is relatively very high. Equity Growth has been superior. EPS Growth has lagged. Murphy Oil’s historical income statement growth and balance sheet growth have diverged. Revenue growth has exceeded asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity. Murphy Oil’s consensus growth expectations are in line with past growth.
- Profitability has been Murphy Oil’s biggest valuation strength. Asset Turnover, Pretax Margin, and Pretax ROA are group leading. These factors have strengthened market perceptions of Murphy Oil. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- Murphy Oil’s risk profile is favorable. Overall variability has been relatively low with relatively low revenue variability, very high E.P.S. variability, and above average stock price volatility. Financial Strength is very low and earnings’ expectations are only average. The debt/capital ratio has declined very significantly.
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