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)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

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

US$ in millions, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 14.22%
0¹	FCFF₀	13,235
1	FCFF₁	13,752	= 13,235 × (1 + 3.91%)	12,040
2	FCFF₂	14,177	= 13,752 × (1 + 3.09%)	10,867
3	FCFF₃	14,499	= 14,177 × (1 + 2.27%)	9,731
4	FCFF₄	14,709	= 14,499 × (1 + 1.45%)	8,643
5	FCFF₅	14,803	= 14,709 × (1 + 0.63%)	7,616
5	Terminal value (TV₅)	109,681	= 14,803 × (1 + 0.63%) ÷ (14.22% – 0.63%)	56,428
Intrinsic value of Marathon Petroleum Corp. capital				105,325
Less: Debt (fair value)				25,970
Intrinsic value of Marathon Petroleum Corp. common stock				79,355

Intrinsic value of Marathon Petroleum Corp. common stock (per share)				$219.60
Current share price				$199.51

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.

Marathon Petroleum Corp., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	72,095	0.74	18.01%
Debt (fair value)	25,970	0.26	3.69%	= 4.54% × (1 – 18.80%)

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

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 361,358,732 × $199.51
= $72,094,680,621.32

Debt (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
= (20.00% + 22.00% + 9.00% + 18.00% + 25.00%) ÷ 5
= 18.80%

WACC = 14.22%

FCFF growth rate (g) implied by PRAT model

Marathon Petroleum Corp., PRAT model

	Average	Dec 31, 2023	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense, net of interest capitalized		1,265)	1,195)	1,267)	1,333)	1,238)
Income from discontinued operations, net of tax		—)	72)	8,448)	1,205)	—)
Net income (loss) attributable to MPC		9,681)	14,516)	9,738)	(9,826)	2,637)

Effective income tax rate (EITR)¹		20.00%	22.00%	9.00%	18.00%	25.00%

Interest expense, net of interest capitalized, after tax²		1,012)	932)	1,153)	1,093)	929)
Add: Dividends declared on common stock		1,261)	1,279)	1,483)	1,514)	1,402)
Interest expense (after tax) and dividends		2,273)	2,211)	2,636)	2,607)	2,331)

EBIT(1 – EITR)³		10,693)	15,376)	2,443)	(9,938)	3,566)

Debt due within one year		1,954)	1,066)	571)	2,854)	711)
Long-term debt due after one year		25,329)	25,634)	24,968)	28,730)	28,127)
Total MPC stockholders’ equity		24,404)	27,715)	26,206)	22,199)	33,694)
Total capital		51,687)	54,415)	51,745)	53,783)	62,532)
Financial Ratios
Retention rate (RR)⁴		0.79	0.86	-0.08	—	0.35
Return on invested capital (ROIC)⁵		20.69%	28.26%	4.72%	-18.48%	5.70%
Averages
RR	0.48
ROIC	8.18%

FCFF growth rate (g)⁶	3.91%

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).

¹ See details »

2023 Calculations

² Interest expense, net of interest capitalized, after tax = Interest expense, net of interest capitalized × (1 – EITR)
= 1,265 × (1 – 20.00%)
= 1,012

³ EBIT(1 – EITR) = Net income (loss) attributable to MPC – Income from discontinued operations, net of tax + Interest expense, net of interest capitalized, after tax
= 9,681 – 0 + 1,012
= 10,693

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [10,693 – 2,273] ÷ 10,693
= 0.79

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 10,693 ÷ 51,687
= 20.69%

⁶ g = RR × ROIC
= 0.48 × 8.18%
= 3.91%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (98,065 × 14.22% – 13,235) ÷ (98,065 + 13,235)
= 0.63%

where:

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

FCFF growth rate (g) forecast

Marathon Petroleum Corp., H-model

Year	Value	g_t
1	g₁	3.91%
2	g₂	3.09%
3	g₃	2.27%
4	g₄	1.45%
5 and thereafter	g₅	0.63%

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)
= 3.91% + (0.63% – 3.91%) × (2 – 1) ÷ (5 – 1)
= 3.09%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 3.91% + (0.63% – 3.91%) × (3 – 1) ÷ (5 – 1)
= 2.27%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 3.91% + (0.63% – 3.91%) × (4 – 1) ÷ (5 – 1)
= 1.45%

Marathon Petroleum Corp. (NYSE:MPC)

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

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

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

FCFF growth rate (g) forecast