Stock Analysis on Net
Stock Analysis on Net

Marathon Petroleum Corp. (NYSE:MPC)

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Marathon Petroleum Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 18.51%
01 FCFE0 12,722
1 FCFE1 13,755 = 12,722 × (1 + 8.12%) 11,607
2 FCFE2 14,415 = 13,755 × (1 + 4.80%) 10,264
3 FCFE3 14,630 = 14,415 × (1 + 1.49%) 8,790
4 FCFE4 14,362 = 14,630 × (1 + -1.83%) 7,282
5 FCFE5 13,624 = 14,362 × (1 + -5.14%) 5,829
5 Terminal value (TV5) 54,656 = 13,624 × (1 + -5.14%) ÷ (18.51% – -5.14%) 23,385
Intrinsic value of Marathon Petroleum Corp. common stock 67,158
 
Intrinsic value of Marathon Petroleum Corp. common stock (per share) $208.96
Current share price $158.80

Based on: 10-K (reporting date: 2023-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.65%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Marathon Petroleum Corp. common stock βMPC 1.52
 
Required rate of return on Marathon Petroleum Corp. common stock3 rMPC 18.51%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rMPC = RF + βMPC [E(RM) – RF]
= 4.65% + 1.52 [13.79% – 4.65%]
= 18.51%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Marathon Petroleum Corp., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends declared on common stock 1,261 1,279 1,483 1,514 1,402
Net income (loss) attributable to MPC 9,681 14,516 9,738 (9,826) 2,637
Sales and other operating revenues 148,379 177,453 119,983 69,779 123,949
Total assets 85,987 89,904 85,373 85,158 98,556
Total MPC stockholders’ equity 24,404 27,715 26,206 22,199 33,694
Financial Ratios
Retention rate1 0.87 0.91 0.85 — 0.47
Profit margin2 6.52% 8.18% 8.12% -14.08% 2.13%
Asset turnover3 1.73 1.97 1.41 0.82 1.26
Financial leverage4 3.52 3.24 3.26 3.84 2.93
Averages
Retention rate 0.77
Profit margin 2.17%
Asset turnover 1.44
Financial leverage 3.36
 
FCFE growth rate (g)5 8.12%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income (loss) attributable to MPC – Dividends declared on common stock) ÷ Net income (loss) attributable to MPC
= (9,681 – 1,261) ÷ 9,681
= 0.87

2 Profit margin = 100 × Net income (loss) attributable to MPC ÷ Sales and other operating revenues
= 100 × 9,681 ÷ 148,379
= 6.52%

3 Asset turnover = Sales and other operating revenues ÷ Total assets
= 148,379 ÷ 85,987
= 1.73

4 Financial leverage = Total assets ÷ Total MPC stockholders’ equity
= 85,987 ÷ 24,404
= 3.52

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.77 × 2.17% × 1.44 × 3.36
= 8.12%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (51,037 × 18.51% – 12,722) ÷ (51,037 + 12,722)
= -5.14%

where:
Equity market value0 = current market value of Marathon Petroleum Corp. common stock (US$ in millions)
FCFE0 = the last year Marathon Petroleum Corp. free cash flow to equity (US$ in millions)
r = required rate of return on Marathon Petroleum Corp. common stock

FCFE growth rate (g) forecast

Marathon Petroleum Corp., H-model

Microsoft Excel
Year Value gt
1 g1 8.12%
2 g2 4.80%
3 g3 1.49%
4 g4 -1.83%
5 and thereafter g5 -5.14%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 8.12% + (-5.14% – 8.12%) × (2 – 1) ÷ (5 – 1)
= 4.80%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.12% + (-5.14% – 8.12%) × (3 – 1) ÷ (5 – 1)
= 1.49%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.12% + (-5.14% – 8.12%) × (4 – 1) ÷ (5 – 1)
= -1.83%