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Marathon Petroleum has been on a remarkable run, and with the stock now around US$433 a share, the obvious question is whether that price is fully supported by the cash the business can generate. With sentiment around refiners shifting quickly, the focus turns to what the company’s cash flows can reasonably justify rather than just where the chart has been. Over the past 5 years the stock has delivered a very large gain of about 7x, which puts a lot of weight on the question of how its cash flows stack up against today’s valuation.
Recent headlines around potential diesel export restrictions and pressure on regional fuel supply touch directly on refining economics, which can influence future cash generation and the timing of those cash flows for Marathon Petroleum. What if you looked at Marathon Petroleum through its earnings instead? See why Marathon Petroleum's 14.2x P/E tells a different valuation story .
The stock's next move may depend on whether its current share price is in line with what a Discounted Cash Flow (DCF) view of Marathon Petroleum's cash flows would support. If you want a wider watchlist of refiners and energy plays while you weigh Marathon Petroleum against its cash flows and policy headlines, start with a focused screen of 27 high quality undervalued stocks . Is Marathon Petroleum a Bargain on Cash Flow?
The Discounted Cash Flow (DCF) model here focuses on the cash Marathon Petroleum can return to shareholders over time and what that is worth today. Over the last twelve months, the business produced about $13.9b of free cash flow, and the projections used in this model assume that future cash generation tapers down rather than races higher, which is typical for a mature refiner with sizeable existing assets. On those cash flow projections, the DCF points to an intrinsic value meaningfully above the current share price of $433.47.
The recent discussion of a potential diesel export ban, which could pressure refining profits, helps explain why the market price may sit below what these projected cash flows imply. That gap between Marathon Petroleum’s trading level and the DCF output is what the detailed valuation work is trying to quantify. Find out what Marathon Petroleum could be worth using our Discounted Cash Flow (DCF) estimate .
The Marathon Petroleum Narrative: What Would Justify Today's Price? Simply Wall St Narratives pick up where the DCF puzzle for Marathon Petroleum leaves off. They outline which paths for future growth, margins and earnings would need to occur for the shares to be worth materially more or less than today’s price, all housed on the Community page.
Each narrative links a specific fair value to a clear set of potential catalysts and risks so you can track which version of the story is unfolding over time. Community views on Marathon Petroleum split between one camp that still sees upside and another that thinks most of the good news is already reflected in the price. Bull case: 8% undervalued "Refining investments at Galveston Bay, Garyville, Robinson and El Paso are aimed at converting lower value inputs into higher value products..." Discover why this Narrative puts Marathon Petroleum at 8% undervalued .
Bear case: 15% overvalued "The numbers suggest that a fairly valued, bearish view on Marathon Petroleum already reflects strong refining margins, substantial cash returns, and continued MPLX growth..." Explore why this Narrative puts Marathon Petroleum at 15% overvalued . One more check for Marathon Petroleum belongs alongside the price chart Before closing the file on Marathon Petroleum, it is worth asking who is steering this tanker and how their rewards line up with your priorities as a shareholder. See who runs Marathon Petroleum and how they are paid .
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation.
We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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Source: Simply Wall Street
