Stock Analysis on Net
Stock Analysis on Net

Marathon Oil Corp. (NYSE:MRO)

This company has been moved to the archive! The financial data has not been updated since August 4, 2022.

Present Value of Free Cash Flow to the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Marathon Oil Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 24.36%
01 FCFF0 2,410
1 FCFF1 2,433 = 2,410 × (1 + 0.94%) 1,956
2 FCFF2 2,514 = 2,433 × (1 + 3.34%) 1,626
3 FCFF3 2,658 = 2,514 × (1 + 5.74%) 1,382
4 FCFF4 2,875 = 2,658 × (1 + 8.14%) 1,202
5 FCFF5 3,178 = 2,875 × (1 + 10.54%) 1,068
5 Terminal value (TV5) 25,423 = 3,178 × (1 + 10.54%) ÷ (24.36% – 10.54%) 8,549
Intrinsic value of Marathon Oil Corp. capital 15,783
Less: Long-term debt and finance lease liability, including current portion (fair value) 4,735
Intrinsic value of Marathon Oil Corp. common stock 11,048
 
Intrinsic value of Marathon Oil Corp. common stock (per share) $16.31
Current share price $21.47

Based on: 10-K (reporting date: 2021-12-31).

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.

Weighted Average Cost of Capital (WACC)

Marathon Oil Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 14,548 0.75 31.12%
Long-term debt and finance lease liability, including current portion (fair value) 4,735 0.25 3.58% = 4.89% × (1 – 26.80%)

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 677,583,502 × $21.47
= $14,547,717,787.94

   Long-term debt and finance lease liability, including current portion (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (6.00% + 1.00% + 21.00% + 23.00% + 83.00%) ÷ 5
= 26.80%

WACC = 24.36%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Marathon Oil Corp., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Interest expense 257 279 280 280 377
Loss from discontinued operations — — — — (4,893)
Net income (loss) 946 (1,451) 480 1,096 (5,723)
 
Effective income tax rate (EITR)1 6.00% 1.00% 21.00% 23.00% 83.00%
 
Interest expense, after tax2 242 276 221 216 64
Add: Dividends paid 141 64 162 169 170
Interest expense (after tax) and dividends 383 340 383 385 234
 
EBIT(1 – EITR)3 1,188 (1,175) 701 1,312 (766)
 
Current portion of long-term finance lease liability 6 — — — —
Long-term debt due within one year 36 — — — —
Long-term debt, excluding due within one year 3,978 5,404 5,501 5,499 5,494
Long-term finance lease liability, excluding current portion 24 — — — —
Stockholders’ equity 10,686 10,561 12,153 12,128 11,708
Total capital 14,730 15,965 17,654 17,627 17,202
Financial Ratios
Retention rate (RR)4 0.68 — 0.45 0.71 —
Return on invested capital (ROIC)5 8.06% -7.36% 3.97% 7.44% -4.45%
Averages
RR 0.61
ROIC 1.53%
 
FCFF growth rate (g)6 0.94%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 257 × (1 – 6.00%)
= 242

3 EBIT(1 – EITR) = Net income (loss) – Loss from discontinued operations + Interest expense, after tax
= 946 – 0 + 242
= 1,188

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,188 – 383] ÷ 1,188
= 0.68

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,188 ÷ 14,730
= 8.06%

6 g = RR × ROIC
= 0.61 × 1.53%
= 0.94%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (19,283 × 24.36% – 2,410) ÷ (19,283 + 2,410)
= 10.54%

where:

Total capital, fair value0 = current fair value of Marathon Oil Corp. debt and equity (US$ in millions)
FCFF0 = the last year Marathon Oil Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Marathon Oil Corp. capital

FCFF growth rate (g) forecast

Marathon Oil Corp., H-model

Microsoft Excel
Year Value gt
1 g1 0.94%
2 g2 3.34%
3 g3 5.74%
4 g4 8.14%
5 and thereafter g5 10.54%

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)
= 0.94% + (10.54% – 0.94%) × (2 – 1) ÷ (5 – 1)
= 3.34%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 0.94% + (10.54% – 0.94%) × (3 – 1) ÷ (5 – 1)
= 5.74%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 0.94% + (10.54% – 0.94%) × (4 – 1) ÷ (5 – 1)
= 8.14%