Murphy Oil: Rapidly Growing Production Means It's Significantly Undervalued

| About: Murphy Oil (MUR)

The price of oil has stabilized since the summer selloff and has been moving up in recent weeks, as the concerns of a double dip recession in the United States fades. Oil stocks have bounced back some, but due to the low valuations and solid growth prospects several are undervalued. One oil stock I like here is Murphy Oil.

Murphy Oil (NYSE:MUR) – “Murphy Oil Corporation, through its subsidiaries, engages in the exploration and production of oil and gas properties worldwide. The company explores for and produces crude oil, natural gas, and natural gas liquids.” (Business description from Yahoo Finance).

8 reasons Murphy Oil is a buy at $55 a share:

1. Murphy Oil has crushed earnings estimates two of the last three quarters and is priced at just 10 times this year’s projected EPS.

2. MUR is selling near the bottom of its five year valuation range based on P/E, P/S, P/B and P/CF.

3. It provides a 2% dividend yield and has raised its dividend an average of 14% annually over the past five years. It also has a low payout ratio which bodes well for future dividend increases.

4. Murphy has a very low five year projected PEG of under .5 which is a 50% discount to its five year average.

5. Murphy continues to grow production capacity. It has a goal of 300K barrels/day by 2015 which implies a average growth rate in production of 11% annually.

6. It is in the process of divesting itself of its refining assets, which should allow it to achieve a higher multiple as a pure E&P company.

7. Its forward PE is just over 9, which is a 25% discount to its five year average.

8. It is selling under analysts’ price targets. The mean analysts’ price target on MUR is $67, S&P is at $71 and Morgan Stanley reiterated its $90 price target on Murphy Oil on November 3rd.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MUR over the next 72 hours.