Executive Summary / Key Takeaways

• The current low-price, low-volatility fuel environment is masking $0.03-$0.04 per gallon of structural margin uplift that Murphy USA has built since 2022, positioning the company for material earnings leverage when conditions normalize.
• Murphy's "zero breakeven" model—where merchandise contribution covers operating expenses—combined with relentless cost discipline is sustaining profitability through the most challenging trough for an EDLP retailer in over a decade.
• A reaccelerated new store program targeting 500+ larger-format locations over the next decade is outperforming pro forma projections, with 2025 deliveries ramping to 40+ stores and 2026 poised for 50+ openings.
• The company's 50-50 capital allocation strategy, balancing growth investment with shareholder returns, makes Murphy USA its own largest shareholder and signals management's conviction in long-term value creation.
• Leadership transition to Mindy West as CEO in January 2026 represents a multi-year succession plan that preserves strategic continuity while bringing deep operational and financial expertise to the next growth phase.

Setting the Scene: The EDLP Model in a Trough

Murphy USA traces its origins to 1996, when the first Murphy USA store opened adjacent to a Walmart (WMT) in Arkansas. The company was formally incorporated in March 2013 and spun off from Murphy Oil Corporation (MUR) that August, marking its transition to a pure-play public fuel retailer. Headquartered in El Dorado, Arkansas, Murphy USA operates 1,772 stores across 27 states as of September 2025, making it the fourth-largest convenience store chain by store count but the leader in fuel volume productivity.

The business model is elegantly simple: serve value-oriented customers with largely non-discretionary products through an Everyday Low Price (EDLP) offer on fuel, supported by growing merchandise contribution. This model thrives on high throughput—Murphy's stores average 235,000-245,000 gallons per store monthly, materially higher than industry norms. The company supplements this with a product supply and wholesale group that provides fuel procurement advantages and Renewable Identification Number (RIN) generation.

The fuel retail industry operates in pronounced cycles, with peaks and troughs occurring every 6-8 years. The current environment represents the trough: retail prices have averaged $2.75-$2.80 per gallon over recent quarters, a level not seen since the onset of COVID. Low absolute prices combined with low volatility create the most challenging conditions for an EDLP retailer because price-sensitive consumers become less willing to drive across town for marginal savings. This dynamic explains Murphy's same-store fuel volume declines of 2-3% in recent quarters, a headwind the company is actively managing through targeted promotional activity and loyalty investments.

Murphy USA competes in a fragmented landscape against three primary public rivals. Casey's General Stores (CASY) operates 2,890 Midwest-focused locations with a foodservice-heavy model generating 41% inside margins. Alimentation Couche-Tard's Circle K (ANCTF) runs 7,107 U.S. stores with international scale and 34.7% merchandise margins. Global Partners (GLP) focuses on Northeast wholesale and retail with thinner 6.14% gross margins. Murphy's differentiation lies in its Walmart-adjacent real estate strategy, low-cost operating model, and fuel-centric throughput advantage.

Strategic Differentiation: The Zero Breakeven Advantage

Murphy USA's core competitive moat is its zero breakeven target, where merchandise contribution dollars fully cover store operating expenses and field G&A. This isn't aspirational—it's a structural reality at maturity. The math is straightforward: merchandise margin minus OpEx, divided by gallons sold. When stores reach full ramp, Murphy achieves 100% coverage or better. This creates a powerful earnings lever where incremental fuel margin dollars flow directly to EBITDA.

The company's cost structure is the lowest in the industry, enabled by disciplined execution and strategic location selection. Walmart-adjacent sites deliver built-in traffic without expensive marketing campaigns. A new labor model rolled out in spring 2025 ensures right-staffing at the right times, controlling costs while reducing overtime. Loss prevention investments have cut shrink, and maintenance initiatives are uncovering seven-figure annual savings opportunities. These aren't one-time fixes—they're cultural imperatives that allow Murphy to maintain EDLP positioning when marginal competitors must raise prices to cover their higher breakeven requirements.

Digital capabilities represent a growing differentiator. Murphy Drive Rewards, launched in 2019, and the relaunched QuickChek Rewards program provide targeted promotional capabilities that competitors lack. In Q3 2025, Murphy saw a 31% increase in new loyalty enrollments and an 11% rise in merchandise transactions. The company is the only retailer that intentionally built a loyalty platform around the nicotine category, creating a destination for tobacco customers and driving 20% growth in nicotine contribution in Q3. This promotional effectiveness—up 12% CAGR since 2020—creates a win-win-win for manufacturers, retailers, and consumers.

The QuickChek acquisition, funded by $500 million in 3.75% senior notes issued in 2021, expanded Murphy's footprint into the Northeast and added non-fuel convenience stores. After initial integration challenges, QuickChek reported its fourth consecutive quarter of same-store food and beverage sales growth in Q3 2025, with total sales up 2.7%. While margins remain pressured by QSR value wars and food inflation, the trajectory is improving. Excluding food and beverage, QuickChek's non-nicotine sales and margins turned positive for the first time in 2025, up 3.1% and 5.8% respectively.

Financial Performance: Evidence of Structural Resilience

Murphy USA's Q3 2025 results demonstrate the durability of its model in adverse conditions. Revenue of $5.1 billion declined 2.5% year-over-year, driven by a 7.2% reduction in average retail fuel price partially offset by 1.2% higher fuel volumes and 3.7% merchandise sales growth. Net income of $129.9 million ($6.76 per diluted share) compared to $149.2 million ($7.20 per share) in Q3 2024, with the decline reflecting lower fuel contribution partially offset by higher merchandise margins and cost control.

The fuel segment tells a story of margin normalization masking underlying strength. Total fuel contribution of $384.8 million (30.7 cents per gallon) declined from $404.2 million (32.6 cpg) in Q3 2024. Retail fuel margins compressed to 28.3 cpg from 31.9 cpg, yet this performance occurred in the trough environment management has consistently highlighted. More importantly, the company maintains that $0.03-$0.04 per gallon of structural uplift since 2022 is being masked by current conditions. This implies that in a normalized environment—where prices exceed $3.00 per gallon and volatility returns—Murphy could realize fuel margins of $0.33-$0.34 per gallon, representing a 10-15% improvement from current levels.

Merchandise performance provides the clearest evidence of strategic execution. Total merchandise contribution of $241.2 million grew 11.3% year-over-year, with unit margins expanding to 21.5% from 20.0%. Same-store merchandise contribution grew 8.3%, driven by 18% growth in nicotine products and 5% growth in center store categories. This performance is particularly notable because it occurred despite headwinds from lower cigarette promotional activity and lottery jackpots. Murphy-only merchandise contribution excluding cigarettes and lottery grew 8.9% in Q2 2025, led by candy and packaged beverages.

Cost control remains exceptional. Store operating expenses increased just 2.8% per store in Q3, or 5.6% on an absolute basis, with two-thirds of the increase attributable to new and larger stores. Selling, general and administrative expenses declined 7.8% in Q3, reflecting lower professional fees and efficiency initiatives. The corporate segment recorded a $34 million loss, but this included a $12.6 million restructuring charge for severance and benefits as the company streamlined its organizational structure.

The balance sheet provides ample flexibility for growth. At September 30, 2025, Murphy held $42.8 million in cash against $1.3 billion in senior notes, $245 million drawn on its $750 million revolver, and a $600 million term loan. The total leverage ratio of 2.2x sits below the 2.5x long-term target and well under the 3.0x covenant limit. Net cash from operations of $568.4 million for the nine-month period funded $321.2 million in capex and $583 million in share repurchases, with the company increasing its buyback pace by $265 million year-over-year.

Outlook and Execution: The Path to Normalized Earnings

Management's guidance frames a clear path through the trough to higher normalized earnings. The company expects to open approximately 40 new stores in 2025, up from 32 in 2024, with over 45 new-to-industry (NTI) stores currently in construction. This positions 2026 for 50+ openings, with a robust pipeline of 90 stores in design or permitting and over 50 more in contract negotiations. The long-term target of 500 new stores over the next decade remains intact, with these 2,800 square foot locations expected to deliver $40-50 million in annual EBITDA contribution per build class at maturity.

The 2028 EBITDA potential framework provides crucial context for the investment thesis. Management originally targeted $1.3 billion in adjusted EBITDA based on mid-cycle assumptions. Current projections suggest $1.2 billion under baseline conditions, with a clear path back to $1.25 billion if the company claws back the $0.01 per gallon it has strategically invested to sustain volume in the low-price environment. An additional $0.01 per gallon beyond that would approach the original $1.3 billion target. This sensitivity highlights the earnings leverage inherent in Murphy's model: each penny of fuel margin on 5+ billion gallons represents $50 million in EBITDA.

Key guidance metrics reflect management's balanced approach. Full-year 2025 fuel volume guidance has been lowered to 235,000-237,000 gallons per store per month, reflecting Q1 storm impacts and reduced price sensitivity below $3.00 per gallon. Merchandise contribution guidance is tightened to the upper end of $870-875 million, signaling confidence in inside sales momentum. Operating expense guidance is reduced to $36,200-$36,600 per store month, while SG&A guidance is lowered to $230-240 million excluding restructuring charges. These adjustments demonstrate management's ability to manage the puts and takes of the business while maintaining the zero breakeven target.

The leadership transition to Mindy West as CEO in January 2026 reinforces strategic continuity. West's background as CFO during the spin-off and COO since 2024 provides deep operational and financial expertise. Her experience taking the company public and managing its balance sheet through multiple cycles positions her to execute the 50-50 capital allocation strategy while accelerating the NTI program. The multi-year succession plan, which began with her COO appointment, ensures no strategic disruption during the transition.

Risks and Asymmetries: What Could Break the Thesis

Fuel dependency remains the primary risk. With approximately 80% of revenue tied to fuel sales, Murphy faces structural headwinds from EV adoption, remote work, and fuel economy improvements. While management expresses bullishness on North American fuel demand through 2030, citing countervailing factors like return-to-office mandates and sensible regulation, the long-term trajectory is uncertain. A sustained shift in consumer behavior could pressure volumes beyond the 2-3% same-store declines currently experienced, particularly if EV penetration accelerates faster than expected.

Regional concentration amplifies this risk. Murphy's heavy presence in the Southeast and Midwest, while providing cost advantages through Walmart adjacency, exposes the company to localized economic downturns and weather disruptions. The Northeast QuickChek stores face additional challenges from persistent traffic weakness and QSR value wars that have pressured food and beverage margins. While older QuickChek stores are coming off lease in coming years, providing reset opportunities, the integration risk remains material.

Execution risk on the accelerated store build is rising. The company is refining its development capabilities after under-delivering on prior targets, implementing new processes like fuel dispenser stress tests and modular building adjustments to reduce cycle times. While these initiatives show promise, any misstep in site selection, permitting, or construction could delay the 500-store program and compress returns. The 2022 and 2023 NTI classes are performing well—delivering 310,000-316,000 gallons per store month—but scaling to 50+ annual openings requires operational excellence.

Competitive dynamics could intensify. While Murphy's low-cost structure provides a moat, major competitors like Circle K and Casey's have greater scale and financial resources to invest in technology, EV charging, and foodservice innovation. If these players accelerate store builds in Murphy's core markets or match its EDLP pricing, market share could erode. The company's structural margin advantage—derived from lower breakeven requirements—would diminish if competitors achieve similar cost structures through scale or technology.

Valuation Context: Pricing the Trough, Not the Recovery

At $398 per share, Murphy USA trades at a market capitalization of $7.68 billion and an enterprise value of $10.41 billion. The stock's valuation multiples reflect current trough earnings rather than normalized potential: price-to-earnings of 16.9x, EV/EBITDA of 10.3x, and free cash flow yield of approximately 5%. These metrics compare favorably to direct peers on a quality-adjusted basis.

Casey's General Stores trades at 36.1x P/E and 18.5x EV/EBITDA, reflecting its higher-growth foodservice model but also its greater capital intensity and lower fuel productivity. Circle K's parent Alimentation Couche-Tard trades at 19.4x P/E and 11.7x EV/EBITDA, with similar scale advantages but less geographic focus. Global Partners, at 22.0x P/E and 9.5x EV/EBITDA, shows lower margins and declining profitability. Murphy's 68.5% return on equity and 10.1% return on assets demonstrate superior capital efficiency, while its 0.55% dividend yield and 8.5% payout ratio provide modest income with substantial reinvestment flexibility.

The valuation asymmetry lies in the structural margin uplift not yet reflected in results. If Murphy realizes the $0.03-$0.04 per gallon in normalized conditions, EBITDA could increase by $150-200 million annually, implying an EV/EBITDA multiple of 8-9x on forward earnings power. This discount to historical mid-cycle multiples of 10-12x suggests the market is pricing Murphy as a declining fuel retailer rather than a growing convenience operator with expanding merchandise margins and a best-in-class cost structure.

Conclusion: Built for the Cycle, Positioned for the Recovery

Murphy USA is performing fundamentally better in the current trough than in prior cycles, a testament to the structural advantages built over the past decade. The zero breakeven model, Walmart-adjacent real estate, and loyalty-driven merchandise growth create a business that can sustain profitability while marginal competitors struggle. Management's decision to lean into value and accelerate store construction during the downturn demonstrates the strategic flexibility afforded by its conservative balance sheet and 50-50 capital allocation framework.

The investment thesis hinges on two variables: fuel margin normalization and new store execution. The $0.03-$0.04 per gallon of structural uplift represents a 50-60% increase in fuel contribution at current volumes, providing clear earnings leverage when prices exceed $3.00 per gallon and volatility returns. Meanwhile, the NTI program's outperformance—2022 and 2023 classes delivering 310,000+ gallons per store month—suggests each 50-store build class will contribute $40-50 million in mature EBITDA, compounding growth through 2028 and beyond.

For investors, the stock's valuation at trough earnings creates an attractive asymmetry. While risks from fuel dependency and competitive pressure are real, Murphy's cost leadership and capital allocation discipline position it to emerge from the cycle with expanded market share and higher normalized earnings. The leadership transition to Mindy West ensures continuity of strategy, while the $2 billion share repurchase authorization signals management's conviction that the market is mispricing the company's long-term potential. The story is not about navigating a difficult environment—it's about building a business that thrives because of it.