LRT Capital: “We view Murphy (MUSA)’s Shares as Undervalued”

LRT Capital Management, an investment management firm, published its second-quarter 2022 investor letter – a copy of which can be downloaded here. As of July 1st, 2022, LRT’s net exposure was approximately 77.74%, and its beta-adjusted exposure was 50.7%. The fund currently has 57 long positions with the top 10 accounting for approximately 40.7% of its total long exposure. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.

In its Q2 2022 investor letter, LRT Capital Management mentioned Murphy USA Inc. (NYSE:MUSA) and explained its insights for the company. Founded in 1996, Murphy USA Inc. (NYSE:MUSA) is an El Dorado, Arkansas-based gasoline and convenience merchandise retailer with a $6.5 billion market capitalization. Murphy USA Inc. (NYSE:MUSA) delivered a 35.08% return since the beginning of the year, while its 12-month returns are up by 91.24%. The stock closed at $269.13 per share on July 18, 2022.

Here is what LRT Capital Management has to say about Murphy USA Inc. (NYSE:MUSA) in its Q2 2022 investor letter:

“We have held a position in Murphy USA for several months and have recently increased it, making it a top ten name in the portfolio. The company is a gas station operator and was spun-off from Murphy Oil in 2013. Murphy USA operates 1,700 stores primarily in Walmart parking lot locations and owns the underlying real-estate.

What makes Murphy USA unique from other convenience store operators such as Casey’s General Stores, Inc. and Alimentation Couche-Tard Inc, is the company’s focus on high volumes of gasoline sales and a minimal amount of convenience store sales. Fuel sales account for close to 60% of gross profit, a big difference from a typical convenience store, where fuel is close to 25% of profits. Most locations have a very small store of approximately 500 sqft only.

In December 2020, Murphy USA purchased QuickChek, a chain of 157 stations in the New Jersey and New York with an average store size of 5,500 sqft. which will strengthen the company’s food offering and expand the company’s focus into larger store formats.

The industry Murphy USA operates is attractive because of rising fixed costs of operations which are squeezing smaller and less well capitalized players leading to industry consolidation. While the advent of electric cars may mean less gasoline sales in the future, we continue to believe that the transition to electric vehicles will take a lot longer than most analysts believe.

The company has been using all available cashflow to repurchase shares, a value creating activity, as we view the shares as undervalued.”

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Our calculations show that Murphy USA Inc. (NYSE:MUSA) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. Murphy USA Inc. (NYSE:MUSA) was in 26 hedge fund portfolios at the end of the second quarter of 2022, compared to 22 funds in the previous quarter. Murphy USA Inc. (NYSE:MUSA) delivered a 11.42% return in the past 3 months.

In December 2021, we also shared another hedge fund’s views on Murphy USA Inc. (NYSE:MUSA) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q2 page.

Disclosure: None. This article is originally published at Insider Monkey.