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Murphy USA (MUSA) Adds Shareholder Value With $1B Buyback Plan

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  • MUSA
  • CVX

Murphy USA Inc.'s MUSA board recently approved a new share repurchase authorization of up to $1 billion, which will commence once the existing $500-million authorization expires and be completed by Dec 31, 2026. The move underscores MUSA’s sound financial position and commitment to reward its shareholders.

MUSA remains committed to returning excess cash to its shareholders through continued share buyback programs. As part of this initiative, the fuel retailer repurchased $399.6 million of its common stock through 2020. For the record, over the past five years, management has returned around $950 million to its shareholders in the form of stock buybacks.

Murphy USA's new authorization also adds stimulus to its capital allocation plan modified in October 2020. It emphasizes MUSA's commitment to bolster organic growth efforts with shareholder payouts to optimize long-term value generation.

The currently Zacks Rank #3 (Hold) Murphy USA is happy to reconfirm its wealth creation formula on strong operational performance and capacity to produce free cash flow. This El Dorado, AR-based energy firm is on course to complete its previously announced $500 million program, roughly two years ahead of schedule. So, the latest authorization lends a competitive edge to its business model and instills investor confidence in the stock. This timeline gives management more freedom over a five-year period to emphasize high-impact organic development while allowing for execution flexibility and cautious liquidity preservation.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Murphy USA, which recently posted better-than-expected third-quarter 2021 earnings results, has a decent dividend payment record. In the last reported quarter, the downstream operator raised its quarterly dividend by 16% to 29 cents per share (or $1.16 per share annualized), which was paid out on Dec 1 to its shareholders of record as of Nov 8. Retaining its pro-shareholder stance, MUSA paid out dividends worth $19.9 million in the first nine months of 2021.

Ballooning Cash Flows

The sharp increase in crude prices from minus $38 a barrel in April 2020 to around $70 allowed the energy companies to deliver a solid financial performance. In particular, cash from operations is on a sustainable path as revenues improve and companies slash capital expenditures from the pre-pandemic levels amid sharply higher commodity prices. Thus, the environment of strong oil prices helped the big energy operators generate significant “excess cash,” which they intend to use to boost investor returns.

Let’s find out how some of the oil biggies are allocating the increasing cash pile to stock buybacks.

Share Repurchases

British energy major BP plc BP, which had a solid start to the year after comfortably beating on first, second and third-quarter earnings, announced plans to buy back $1.4 billion worth of shares by utilizing surplus cashflow generated through the January-to-June period.

BP recently reported third-quarter 2021 adjusted earnings of 99 cents per American Depositary Share (ADS) on a replacement cost basis excluding non-operating items. The bottom line beat the Zacks Consensus Estimate of earnings of 96 cents per share and also surged from the year-ago profit of 3 cents. Solid quarterly earnings were driven by higher realizations of commodity prices and a stronger refining business.

Management at the French company TotalEnergies TTE stated that it will spend up to 40% of the additional cash flows generated in an expensive oil price environment, pegged at an above $60 a barrel.

TTE recently reported third-quarter 2021 operating earnings of $1.76 (€1.49) per share, beating the Zacks Consensus Estimate of $1.56 by 12.8%. The bottom line also improved 506.9% from the year-ago figure of 29 cents (€0.24) per share. This year-over-year upside was owing to increased commodity prices and global economic recovery. These factors also spurred higher demand.

American supermajor Chevron Corporation CVX revived its stock repurchase program and vowed to buy back $2-$3 billion shares annually. The plan is effective from the third quarter of this year.

CVX reported adjusted third-quarter earnings per share of $2.96, beating the Zacks Consensus Estimate of $2.21. Chevron reported a profit of just 18 cents per share in the year-ago period. CVX’s impressive earnings reflect a rise in commodity prices and production plus expanded refined products sales.

Wrapping Up

A much-increased crude price scenario and the economic recovery contributed to the balance-sheet strength of the energy companies. Benefiting from the robust fundamentals, their cash from operations is now covering capital spending. This provides a sustainable financial framework for the oil firms to increase cash returns to their shareholders.


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