Murphy USA And Wal-Mart Deal Sets Company Up Nicely Before Spin-Off

| About: Murphy Oil (MUR)

Murphy Oil (NYSE:MUR) will be splitting into two separate companies at some point during the 2013 investing year. The company will trade as Murphy Oil, which will explore and produce oil in the United States, Canada, and Malaysia, and Murphy USA, which operates retail gas stations and two ethanol plants.

An announcement this week released the news that Murphy USA will be constructing 200 more gas stations in partnership with Wal-Mart (NYSE:WMT). The partnership began in 1996 and makes up the majority (1,012 of 1155) of Murphy's gas stations. The new fuel stations will be built at Wal-Marts in the Midwest and Southeast United States. Construction is expected to be complete over the next three years and will bring Murphy USA over the 1350 mark of stations. Murphy USA has gas stations in 23 states and should benefit from the new deal with Wal-Mart. Gas stations at the retailing giant provide a steady stream of customers for Murphy.

Murphy Chief Executive Officer Steven Cosse had this to say, "Significant step forward in our long-term relationship with Wal-Mart as we pursue our business plan to separate the U.S. retail business into a stand-alone entity." The spin-off is one of several ways Murphy is giving back to shareholders. The company will pay a $2.50 special dividend to end 2012 and also authorized a $1 billion share repurchase program.

Shares of Murphy Oil trade at $59.47, after trading between $43.29 and $65.60 over the course of 2012. A $1 billion share repurchase will retire around 9% of outstanding shares. A spin-off will unlock value for shareholders and could turn either half into a pure play investment or an acquisition target. The Murphy Oil unit continues to replace oil reserves at a strong rate and has key finds and exploration units in the Asian region of Malaysia. Murphy is also investing in Africa in regions like Congo to boost oil reserves.

Shares of Murphy remain down 27% over the last five years. I think 2013 is the year shares hit new highs and could easily see shares hitting $70 by the end of 2013. Analysts currently project the company to post earnings per share of $5.52 for the fiscal year. A $70 price target represents 13 times earnings. However, earnings estimates could also be boosted once the spin-off is complete. The addition of 200 gas stations will also boost the company's total by 17%, representing a boost in revenue and likely earnings per share numbers over the next three years.

Consider buying before the split as both parts of the company represent strong plays. Murphy Oil provides exposure to several regions of the world. The company will also be an acquisition target with strong proven reserves that could boost a major oil companies totals. Murphy USA will be a steady earner that can grow through partnerships with Wal-Mart and other retailers.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MUR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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