Intrinsic value of Marathon Petroleum - MPC

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$53.08

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$53.08

 
Intrinsic value

$151.48

 
Up/down potential

+185%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MPC stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 28.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -12.34
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.34
  5.30
  5.27
  5.24
Revenue, $m
  63,332
  69,792
  76,548
  83,599
  90,948
  98,599
  106,556
  114,829
  123,426
  132,360
  141,645
  151,295
  161,329
  171,764
  182,623
  193,927
  205,699
  217,966
  230,755
  244,093
  258,013
  272,544
  287,722
  303,582
  320,160
  337,496
  355,631
  374,607
  394,470
  415,267
  437,048
Variable operating expenses, $m
 
  51,679
  56,647
  61,832
  67,236
  72,862
  78,713
  84,796
  91,118
  97,688
  104,515
  111,253
  118,631
  126,305
  134,289
  142,601
  151,258
  160,278
  169,682
  179,491
  189,726
  200,412
  211,573
  223,235
  235,425
  248,173
  261,508
  275,462
  290,068
  305,361
  321,377
Fixed operating expenses, $m
 
  14,727
  15,095
  15,473
  15,860
  16,256
  16,662
  17,079
  17,506
  17,944
  18,392
  18,852
  19,323
  19,806
  20,302
  20,809
  21,329
  21,863
  22,409
  22,969
  23,544
  24,132
  24,736
  25,354
  25,988
  26,637
  27,303
  27,986
  28,686
  29,403
  30,138
Total operating expenses, $m
  60,954
  66,406
  71,742
  77,305
  83,096
  89,118
  95,375
  101,875
  108,624
  115,632
  122,907
  130,105
  137,954
  146,111
  154,591
  163,410
  172,587
  182,141
  192,091
  202,460
  213,270
  224,544
  236,309
  248,589
  261,413
  274,810
  288,811
  303,448
  318,754
  334,764
  351,515
Operating income, $m
  2,378
  3,385
  4,805
  6,294
  7,852
  9,481
  11,180
  12,953
  14,802
  16,729
  18,737
  21,190
  23,374
  25,653
  28,032
  30,516
  33,112
  35,825
  38,663
  41,633
  44,743
  48,000
  51,414
  54,993
  58,747
  62,686
  66,819
  71,159
  75,716
  80,503
  85,533
EBITDA, $m
  4,379
  5,666
  7,272
  8,955
  10,715
  12,554
  14,473
  16,474
  18,559
  20,732
  22,996
  25,356
  27,817
  30,383
  33,060
  35,856
  38,776
  41,827
  45,017
  48,354
  51,847
  55,505
  59,336
  63,352
  67,562
  71,978
  76,611
  81,474
  86,578
  91,938
  97,567
Interest expense (income), $m
  478
  443
  574
  712
  857
  1,007
  1,163
  1,326
  1,495
  1,671
  1,853
  2,043
  2,240
  2,445
  2,658
  2,880
  3,111
  3,352
  3,603
  3,864
  4,137
  4,421
  4,718
  5,028
  5,352
  5,691
  6,046
  6,416
  6,804
  7,210
  7,635
Earnings before tax, $m
  1,822
  2,943
  4,231
  5,582
  6,996
  8,474
  10,017
  11,627
  13,307
  15,058
  16,884
  19,147
  21,134
  23,208
  25,374
  27,636
  30,000
  32,473
  35,061
  37,769
  40,606
  43,579
  46,696
  49,965
  53,395
  56,994
  60,774
  64,743
  68,912
  73,294
  77,898
Tax expense, $m
  609
  795
  1,142
  1,507
  1,889
  2,288
  2,705
  3,139
  3,593
  4,066
  4,559
  5,170
  5,706
  6,266
  6,851
  7,462
  8,100
  8,768
  9,466
  10,198
  10,964
  11,766
  12,608
  13,491
  14,417
  15,388
  16,409
  17,481
  18,606
  19,789
  21,032
Net income, $m
  1,174
  2,148
  3,089
  4,075
  5,107
  6,186
  7,313
  8,488
  9,714
  10,992
  12,325
  13,978
  15,428
  16,942
  18,523
  20,174
  21,900
  23,705
  25,594
  27,572
  29,643
  31,813
  34,088
  36,474
  38,978
  41,606
  44,365
  47,262
  50,306
  53,504
  56,865

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  887
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  44,413
  47,967
  52,610
  57,457
  62,507
  67,765
  73,234
  78,920
  84,829
  90,969
  97,350
  103,983
  110,879
  118,051
  125,514
  133,283
  141,374
  149,805
  158,594
  167,762
  177,328
  187,316
  197,747
  208,647
  220,041
  231,956
  244,420
  257,462
  271,114
  285,407
  300,376
Adjusted assets (=assets-cash), $m
  43,526
  47,967
  52,610
  57,457
  62,507
  67,765
  73,234
  78,920
  84,829
  90,969
  97,350
  103,983
  110,879
  118,051
  125,514
  133,283
  141,374
  149,805
  158,594
  167,762
  177,328
  187,316
  197,747
  208,647
  220,041
  231,956
  244,420
  257,462
  271,114
  285,407
  300,376
Revenue / Adjusted assets
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
  1.455
Average production assets, $m
  25,465
  28,056
  30,772
  33,607
  36,561
  39,637
  42,836
  46,161
  49,617
  53,209
  56,941
  60,821
  64,854
  69,049
  73,414
  77,958
  82,691
  87,622
  92,763
  98,126
  103,721
  109,563
  115,664
  122,040
  128,704
  135,673
  142,964
  150,592
  158,577
  166,937
  175,693
Working capital, $m
  3,255
  2,652
  2,909
  3,177
  3,456
  3,747
  4,049
  4,363
  4,690
  5,030
  5,382
  5,749
  6,130
  6,527
  6,940
  7,369
  7,817
  8,283
  8,769
  9,276
  9,804
  10,357
  10,933
  11,536
  12,166
  12,825
  13,514
  14,235
  14,990
  15,780
  16,608
Total debt, $m
  10,572
  13,677
  16,964
  20,395
  23,971
  27,694
  31,566
  35,591
  39,775
  44,122
  48,640
  53,336
  58,218
  63,296
  68,580
  74,080
  79,809
  85,778
  92,001
  98,491
  105,264
  112,336
  119,721
  127,438
  135,505
  143,941
  152,765
  161,999
  171,664
  181,784
  192,383
Total liabilities, $m
  30,856
  33,961
  37,248
  40,679
  44,255
  47,978
  51,850
  55,875
  60,059
  64,406
  68,924
  73,620
  78,502
  83,580
  88,864
  94,364
  100,093
  106,062
  112,285
  118,775
  125,548
  132,620
  140,005
  147,722
  155,789
  164,225
  173,049
  182,283
  191,948
  202,068
  212,667
Total equity, $m
  13,557
  14,006
  15,362
  16,777
  18,252
  19,787
  21,384
  23,045
  24,770
  26,563
  28,426
  30,363
  32,377
  34,471
  36,650
  38,919
  41,281
  43,743
  46,310
  48,986
  51,780
  54,696
  57,742
  60,925
  64,252
  67,731
  71,371
  75,179
  79,165
  83,339
  87,710
Total liabilities and equity, $m
  44,413
  47,967
  52,610
  57,456
  62,507
  67,765
  73,234
  78,920
  84,829
  90,969
  97,350
  103,983
  110,879
  118,051
  125,514
  133,283
  141,374
  149,805
  158,595
  167,761
  177,328
  187,316
  197,747
  208,647
  220,041
  231,956
  244,420
  257,462
  271,113
  285,407
  300,377
Debt-to-equity ratio
  0.780
  0.980
  1.100
  1.220
  1.310
  1.400
  1.480
  1.540
  1.610
  1.660
  1.710
  1.760
  1.800
  1.840
  1.870
  1.900
  1.930
  1.960
  1.990
  2.010
  2.030
  2.050
  2.070
  2.090
  2.110
  2.130
  2.140
  2.150
  2.170
  2.180
  2.190
Adjusted equity ratio
  0.291
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,174
  2,148
  3,089
  4,075
  5,107
  6,186
  7,313
  8,488
  9,714
  10,992
  12,325
  13,978
  15,428
  16,942
  18,523
  20,174
  21,900
  23,705
  25,594
  27,572
  29,643
  31,813
  34,088
  36,474
  38,978
  41,606
  44,365
  47,262
  50,306
  53,504
  56,865
Depreciation, amort., depletion, $m
  2,001
  2,280
  2,466
  2,661
  2,863
  3,074
  3,293
  3,520
  3,757
  4,003
  4,259
  4,166
  4,442
  4,729
  5,028
  5,340
  5,664
  6,002
  6,354
  6,721
  7,104
  7,504
  7,922
  8,359
  8,815
  9,293
  9,792
  10,315
  10,861
  11,434
  12,034
Funds from operations, $m
  3,761
  4,428
  5,555
  6,735
  7,970
  9,260
  10,605
  12,008
  13,471
  14,995
  16,584
  18,143
  19,870
  21,671
  23,551
  25,514
  27,564
  29,707
  31,948
  34,292
  36,747
  39,317
  42,010
  44,833
  47,793
  50,899
  54,157
  57,577
  61,167
  64,938
  68,899
Change in working capital, $m
  -225
  245
  257
  268
  279
  291
  302
  314
  327
  339
  353
  367
  381
  397
  413
  430
  447
  466
  486
  507
  529
  552
  577
  603
  630
  659
  689
  721
  755
  790
  828
Cash from operations, $m
  3,986
  4,484
  5,298
  6,467
  7,691
  8,969
  10,303
  11,694
  13,144
  14,656
  16,231
  17,777
  19,489
  21,275
  23,139
  25,084
  27,117
  29,241
  31,462
  33,786
  36,218
  38,765
  41,434
  44,231
  47,163
  50,240
  53,468
  56,856
  60,413
  64,148
  68,072
Maintenance CAPEX, $m
  0
  -1,744
  -1,922
  -2,108
  -2,302
  -2,504
  -2,715
  -2,934
  -3,162
  -3,398
  -3,644
  -3,900
  -4,166
  -4,442
  -4,729
  -5,028
  -5,340
  -5,664
  -6,002
  -6,354
  -6,721
  -7,104
  -7,504
  -7,922
  -8,359
  -8,815
  -9,293
  -9,792
  -10,315
  -10,861
  -11,434
New CAPEX, $m
  -2,892
  -2,592
  -2,716
  -2,835
  -2,954
  -3,075
  -3,199
  -3,326
  -3,456
  -3,592
  -3,732
  -3,879
  -4,034
  -4,195
  -4,365
  -4,544
  -4,733
  -4,931
  -5,141
  -5,362
  -5,596
  -5,842
  -6,102
  -6,376
  -6,664
  -6,969
  -7,290
  -7,629
  -7,985
  -8,360
  -8,756
Cash from investing activities, $m
  -2,941
  -4,336
  -4,638
  -4,943
  -5,256
  -5,579
  -5,914
  -6,260
  -6,618
  -6,990
  -7,376
  -7,779
  -8,200
  -8,637
  -9,094
  -9,572
  -10,073
  -10,595
  -11,143
  -11,716
  -12,317
  -12,946
  -13,606
  -14,298
  -15,023
  -15,784
  -16,583
  -17,421
  -18,300
  -19,221
  -20,190
Free cash flow, $m
  1,045
  148
  661
  1,525
  2,434
  3,389
  4,389
  5,435
  6,527
  7,666
  8,855
  9,997
  11,290
  12,638
  14,044
  15,512
  17,044
  18,646
  20,319
  22,070
  23,901
  25,819
  27,828
  29,933
  32,140
  34,455
  36,885
  39,435
  42,113
  44,926
  47,882
Issuance/(repayment) of debt, $m
  -1,405
  3,133
  3,287
  3,431
  3,576
  3,723
  3,872
  4,025
  4,183
  4,347
  4,518
  4,696
  4,882
  5,078
  5,284
  5,500
  5,729
  5,969
  6,223
  6,491
  6,773
  7,071
  7,386
  7,717
  8,067
  8,436
  8,824
  9,234
  9,665
  10,120
  10,598
Issuance/(repurchase) of shares, $m
  1,574
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -566
  3,133
  3,287
  3,431
  3,576
  3,723
  3,872
  4,025
  4,183
  4,347
  4,518
  4,696
  4,882
  5,078
  5,284
  5,500
  5,729
  5,969
  6,223
  6,491
  6,773
  7,071
  7,386
  7,717
  8,067
  8,436
  8,824
  9,234
  9,665
  10,120
  10,598
Total cash flow (excl. dividends), $m
  479
  3,280
  3,948
  4,956
  6,010
  7,112
  8,261
  9,460
  10,710
  12,013
  13,372
  14,693
  16,172
  17,716
  19,328
  21,012
  22,773
  24,615
  26,542
  28,560
  30,674
  32,890
  35,213
  37,650
  40,207
  42,891
  45,709
  48,669
  51,779
  55,046
  58,480
Retained Cash Flow (-), $m
  -320
  -1,308
  -1,356
  -1,415
  -1,475
  -1,535
  -1,597
  -1,660
  -1,725
  -1,793
  -1,863
  -1,937
  -2,014
  -2,094
  -2,179
  -2,268
  -2,363
  -2,462
  -2,566
  -2,677
  -2,793
  -2,916
  -3,046
  -3,183
  -3,327
  -3,479
  -3,639
  -3,808
  -3,986
  -4,174
  -4,371
Prev. year cash balance distribution, $m
 
  859
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  2,831
  2,592
  3,541
  4,536
  5,576
  6,664
  7,800
  8,985
  10,220
  11,509
  12,756
  14,158
  15,621
  17,149
  18,744
  20,410
  22,153
  23,976
  25,883
  27,881
  29,974
  32,167
  34,467
  36,880
  39,412
  42,070
  44,861
  47,792
  50,872
  54,109
Discount rate, %
 
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
 
  2,678
  2,308
  2,949
  3,513
  3,989
  4,373
  4,659
  4,847
  4,937
  4,932
  4,804
  4,637
  4,400
  4,107
  3,769
  3,402
  3,017
  2,630
  2,251
  1,890
  1,557
  1,257
  993
  768
  580
  428
  308
  215
  147
  97
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Marathon Petroleum Corporation, together with its subsidiaries, engages in refining, marketing, retailing, and transporting petroleum products primarily in the United States. It operates through three segments: Refining & Marketing, Speedway, and Midstream. The company refines crude oil and other feed stocks at its seven refineries in the Gulf Coast and Midwest regions of the United States; and purchases ethanol and refined products for resale. Its refined products include gasoline, distillates, propane, feed stocks and petrochemicals, heavy fuel oil, and asphalt. The company also sells transportation fuels and convenience products in the retail market through Speedway convenience stores; gathers, transports, fractionates, stores, and markets natural gas liquids (NGLs); and transports and stores crude oil and refined products. Marathon Petroleum Corporation markets its refined products to resellers, consumers, independent retailers, wholesale customers, its Marathon brand jobbers and Speedway brand convenience stores, airlines, transportation companies, and utilities. The company also exports its refined products. As of February 2, 2017, it owned, leased, and had ownership interests in approximately 8,400 miles of crude and light product pipelines, as well as 5,600 miles of gas gathering and NGLs pipelines; and owned and operated approximately 5,500 independently owned retail outlets in 19 states, and 2,730 convenience stores in 21 states. The company was incorporated in 2009 and is headquartered in Findlay, Ohio.

FINANCIAL RATIOS  of  Marathon Petroleum (MPC)

Valuation Ratios
P/E Ratio 23.9
Price to Sales 0.4
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 7
Price to Free Cash Flow 25.6
Growth Rates
Sales Growth Rate -12.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 44.7%
Cap. Spend. - 3 Yr. Gr. Rate 19.1%
Financial Strength
Quick Ratio 32
Current Ratio 0
LT Debt to Equity 77.8%
Total Debt to Equity 78%
Interest Coverage 5
Management Effectiveness
Return On Assets 3.4%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 4.8%
Ret/ On T. Cap. - 3 Yr. Avg. 11.4%
Return On Equity 8.8%
Return On Equity - 3 Yr. Avg. 18.6%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 10%
Gross Margin - 3 Yr. Avg. 9.7%
EBITDA Margin 6.8%
EBITDA Margin - 3 Yr. Avg. 6.9%
Operating Margin 3.8%
Oper. Margin - 3 Yr. Avg. 4.8%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 4.3%
Net Profit Margin 1.9%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 33.4%
Eff/ Tax Rate - 3 Yr. Avg. 33.7%
Payout Ratio 61.2%

MPC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MPC stock intrinsic value calculation we used $63332 million for the last fiscal year's total revenue generated by Marathon Petroleum. The default revenue input number comes from 2016 income statement of Marathon Petroleum. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MPC stock valuation model: a) initial revenue growth rate of 10.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.7%, whose default value for MPC is calculated based on our internal credit rating of Marathon Petroleum, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Marathon Petroleum.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MPC stock the variable cost ratio is equal to 74.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $14368 million in the base year in the intrinsic value calculation for MPC stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.2% for Marathon Petroleum.

Corporate tax rate of 27% is the nominal tax rate for Marathon Petroleum. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MPC stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MPC are equal to 40.2%.

Life of production assets of 14.6 years is the average useful life of capital assets used in Marathon Petroleum operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MPC is equal to 3.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $13557 million for Marathon Petroleum - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 532.054 million for Marathon Petroleum is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Marathon Petroleum at the current share price and the inputted number of shares is $28.2 billion.


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COMPANY NEWS

▶ How Does MPC Stock Correlate with WTI?   [May-23-17 10:36AM  Market Realist]
▶ How Analyst Ratings for Energy Companies Changed Last Week   [May-22-17 11:36AM  Market Realist]
▶ Key Energy Industry Updates for May 1519   [09:44AM  Market Realist]
▶ Marathon Petroleums Beta Analysis: A Peer Comparison   [May-19-17 10:37AM  Market Realist]
▶ How Does MPCs PEG Compare to Other Refiners?   [07:37AM  Market Realist]
▶ How Has Marathon Petroleums Dividend Yield Shaped Up?   [May-18-17 04:36PM  Market Realist]
▶ MPC, VLO, TSO, PSX: Which Is Analysts Pick?   [09:05AM  Market Realist]
▶ A Look at Refining Stocks Post-1Q Implied Volatility   [May-17-17 09:06AM  Market Realist]
▶ How Refining Stocks Short Interest Compares   [07:36AM  Market Realist]
▶ Institutional Holdings in Downstream Stocks Rise   [May-16-17 10:37AM  Market Realist]
▶ How Refining Stocks Have Performed in 2Q17   [07:37AM  Market Realist]
▶ Where Does Marathon Petroleums PEG Ratio Stand?   [May-01-17 10:38AM  Market Realist]
▶ Speedway profits dip as parent mulls spinoff   [Apr-27-17 04:10PM  American City Business Journals]
▶ Marathon Petroleum beats 1Q profit forecasts   [06:44AM  Associated Press]
▶ Marathon Petroleum Corp. announces dividend   [12:12PM  GlobeNewswire]
▶ Why Valeros Refining Margin Expanded in 1Q17   [11:35AM  Market Realist]
▶ Where Does Valeros Beta Stand Compared to Peers?   [Apr-12-17 09:07AM  Market Realist]
▶ How Valero Stock Has Performed in 2017   [Apr-11-17 03:05PM  Market Realist]
▶ Refiners PEG Multiples: Whose Valuation Looks Attractive?   [Apr-07-17 10:36AM  Market Realist]
▶ Crude Surges! Goldman Sachs' 4 Energy Picks   [Apr-06-17 12:03PM  Barrons.com]
▶ Refining Stocks Dividend Yields: Who Leads the Pack?   [Apr-05-17 05:05PM  Market Realist]
▶ Why Refining Stocks Fell in 1Q17   [03:33PM  Market Realist]
▶ What Sets Phillips 66 Apart From Other Refiners   [Mar-21-17 03:14PM  at Motley Fool]
▶ Tracking the next move for energy   [Mar-20-17 12:50PM  at CNBC]
▶ Five Best Oil Stocks to Buy Now   [Mar-16-17 03:56PM  at Insider Monkey]
Stock chart of MPC Financial statements of MPC Annual reports of MPC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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