8 Reasons To Go Long Murphy Oil

| About: Murphy Oil (MUR)

Gas prices are rising and President Obama has recently designated them as the evil business group of the month. For all the political rhetoric about how much money the oil companies are squeezing from us poor consumers (we will forget for a minute that local, state and the federal governments take in four times more in gas taxes than the biggest five major domestic oil companies make in profit), oil equities have not been star performers in the first quarter despite one of the best starts to a year in decades. One stock that is flat for the quarter despite low valuations and positive production growth is Murphy Oil (MUR).

Murphy Oil - "Murphy Oil Corporation, through its subsidiaries, engages in the exploration and production of oil and gas properties worldwide. It explores for and produces crude oil, natural gas, and natural gas liquids. The company is also involved in refining and marketing crude oil and other feedstocks into petroleum products, such as gasoline and distillates; buying and selling crude oil and refined products; and transporting and marketing petroleum products. It markets its refined products through a network of retail gasoline stations and unbranded wholesale customers". (Business description from Yahoo Finance)

8 reasons Murphy Oil is a good buy at under $56 a share:

  • The consensus price target for the 12 analysts that cover the stock is $70 a share, which is more than 25% above the current stock price.
  • The stock is selling five times operating cash flow and provides a dividend yield of 2% and has raised its dividend payments at a 12% annual pace over the past five years.
  • MUR sells near the bottom of its five year valuation range based on P/CF, P/B, and P/S.
  • The stock is cheap at just 23% over book value and 39% of annual revenues.
  • Murphy Oil has a forward PE of under 8, which is a 35% discount to its historical average.
  • The company is producing 24,000 BOE/day in the Bakken reserve and expects that to increase by 50% over the next four years.
  • S&P predicts the company will grow EPS at an average rate of 25% annually over the next three years and it also has a low five year projected PEG (.70)
  • Given its relative small market capitalization (under $11B), solid balance sheet ($450mm in net cash), and increasing production (Company's strategic plan is to go from 179,000 BOE/day in FY2011 to 300,000 BOE/day in FY2015), and disposal of some core refinery assets last summer; it would not surprise me to see a larger player pursue Murphy at some point in the future especially at these valuations.

Disclosure: I am long MUR.