Marathon Petroleum Corp (MPC, Financial) has experienced a daily gain of 3.18%, and a three-month gain of 38.59%. With an Earnings Per Share (EPS) of 27.56, the question arises, is the stock modestly overvalued? This article offers a valuation analysis to answer this question. Let's explore the financials of Marathon Petroleum (MPC).
Company Introduction
Marathon Petroleum is an independent refiner with 13 refineries spread across the midcontinent, West Coast, and Gulf Coast of the United States. With a total throughput capacity of 2.9 million barrels per day, the company has a significant presence in the industry. The comparison between the stock price and the GF Value, an estimation of fair value, provides an intriguing perspective on the company's value.
Summarizing GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to our valuation method, Marathon Petroleum appears modestly overvalued. This is based on the stock's current price of $155.69 per share, and a market cap of $62.30 billion. This suggests that the long-term return of Marathon Petroleum's stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. It is crucial to review the financial strength of a company before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage can provide a good starting point for understanding a company's financial strength. Marathon Petroleum's cash-to-debt ratio of 0.4 is lower than 55.73% of 1021 companies in the Oil & Gas industry. The overall financial strength of Marathon Petroleum is ranked 7 out of 10 by GuruFocus, indicating a fair financial strength.
Profitability and Growth
Investing in profitable companies typically carries less risk. A company with high profit margins generally offers better performance potential than a company with low profit margins. Marathon Petroleum has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $156.80 billion and Earnings Per Share (EPS) of $27.56. Its operating margin of 10.44% is better than 53.98% of 967 companies in the Oil & Gas industry. Overall, GuruFocus ranks Marathon Petroleum's profitability as fair.
Growth is a crucial factor in the valuation of a company. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Marathon Petroleum's 3-year average revenue growth rate is better than 80.59% of 850 companies in the Oil & Gas industry. Its 3-year average EBITDA growth rate is 60.9%, which ranks better than 87.93% of 820 companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) can provide another perspective on its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Marathon Petroleum's ROIC is 21.62, and its cost of capital is 8.49.
Conclusion
In conclusion, the stock of Marathon Petroleum gives every indication of being modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 87.93% of 820 companies in the Oil & Gas industry. To learn more about Marathon Petroleum stock, you can check out its 30-Year Financials here.
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