Very Significant Insider Buying in this Oil Company
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Murphy Oil Corp. (NYSE: MUR) is an oil and gas exploration and production company that also engages in retail and gasoline marketing in the US, and refining and marketing in the UK. Exploration operations are focused in the US, Canada, UK, Malaysia and the Republic of the Congo. Recently, the company has had very significant insider buying. Would it be wise to copy the insiders on this one?
After some light selling activity in late January, Director Claiborne Deming has been adding large numbers of MUR shares: On Feb. 13, Mr. Deming bought 50,000 shares of the company at an average price of $60.51/share. That's a total value of more than $3 million. Just one day later, he bought 30,000 more shares, which, at a price of $60.07/share, had a value of more than $1.8 million. So, in only two days, Mr. Deming has bought almost $5 million of MUR stock.
Clairborne Deming is a key figure in the company. An heir to the Murphy Oil company funded in 1907 by his grandfather, he became the CEO in 1994, becoming the third-generation family member to run the company. During his years as CEO he was able to turn a struggling outfit into one of the fastest-growing oil producers in America. Today, he is the Chairman of the Board, so one can safely assume that he probably has some unique insights into Murphy Oil's business.
The stock currently trades at a P/E of 12.39, but future P/E is lower, at an even more attractive 9.45. Compared to its competitors, its current P/E is similar to Marathon Oil's (NYSE: MRO) (13.58), but higher than Chevron's (NYSE: CVX) (8.63) or ConocoPhillips (NYSE: COP) (9.65). With regards to forward P/E, however, Murphy's 9.45 is on par with Chevron's 9.24, ConocoPhillip's 9.20, and more attractive than Marathon's 10.70.
Analysts are mildly bullish
Most recent analyst reports are moderately bullish on the stock, and have price targets that are higher than the current stock price. Oppenheimer raised its price target from $65 to $75, and analysts at Brein Murray reiterated their buy rating and assigned a $77 price target.
Others were not as bullish, with Howard Weil cutting the price target to $61 (the same as last Friday's closing price) and giving the stock a market perform rating, or Société Générale downgrading it from buy to hold. Current average price target is $65.45, which implies a +7.3% potential upside.
The stock is trading near its 52-week high, and +50.7% off its 52-week low. However, it is only up 3% YTD, and still far from its pre-financial crisis levels (it reached $96 in 2008), or its 2011 levels (it was trading in the low $70s). That means that, while having current positive momentum, the stock might still have plenty of room to grow.
Murphy Oil pays a dividend of $1.25/share, which works out to a yield of 2.04%. While not a very high yield, is slightly higher than that of competitors with similar market caps like Marathon Oil (1.96%), but lower than big-names like Chevron (3.13%) or ConocoPhillips (4.63%).
On paper, Murphy Oil is attractive, but not more so than some of its competitors -- compared to big oil, the stock has only average valuations, low-to-average dividend yield, neutral to mildly bullish analyst reports. However, when the company's director, who has a unique view into the business, uses almost $5 million of his hard-earned cash to buy his company's stock in the open market, it is wise for investors to take notice.
Common sense dictates that the only reason an insider would invest such a high amount of money in his own company is that he expects to make money. While currently Murphy Oil does not look like an extraordinary bargain, Mr. Deming's actions seem to signal that positive surprises might be in the offing. It is now up to investors to decide whether to follow suit and buy some of Murphy Oil shares now, or wait for future developments in order have a clearer picture.
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