Is Marathon Petroleum (MPC) Still Attractive After A 66.6% One Year Share Price Gain

• Wondering if Marathon Petroleum at around US$224 per share still offers value, or if most of the opportunity is already reflected in the price.
• The stock has returned 4.9% over the last week, while the 30 day return shows an 11.0% decline, set against a year to date return of 35.7% and a 66.6% return over the past year.
• Recent headlines have focused on Marathon Petroleum’s position in the US energy sector and its capital allocation moves. These factors often influence how investors think about future cash flows and risk. Broader sector sentiment and company specific developments can help explain why short term returns differ from the strong multi year performance, and set the backdrop for any valuation check.
• Marathon Petroleum currently has a value score of 4 out of 6. The rest of this article will compare what different valuation approaches suggest about the stock, before finishing with a way to think about valuation that can give an even clearer picture.

Marathon Petroleum delivered 66.6% returns over the last year. See how this stacks up to the rest of the Oil and Gas industry.

Approach 1: Marathon Petroleum Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth today by projecting its future cash flows and discounting them back to a present value figure.

For Marathon Petroleum, the latest twelve month Free Cash Flow is about $5.76b. Analysts have provided explicit projections out to 2030, with Free Cash Flow in that year expected at $5.94b, and Simply Wall St extrapolates the remaining years in the 2 Stage Free Cash Flow to Equity model.

Using these cash flow projections, discounted back using the DCF approach, the estimated intrinsic value for Marathon Petroleum is about $425.60 per share. Against a current share price of roughly $224, the model indicates the stock is trading at a 47.3% discount to this estimate within this valuation framework.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Marathon Petroleum is undervalued by 47.3%. Track this in your watchlist or portfolio, or discover 54 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Marathon Petroleum.

Approach 2: Marathon Petroleum Price vs Earnings

For profitable companies, the P/E ratio is a useful way to relate what you are paying per share to the earnings that each share generates. It helps you see how many dollars of price the market is assigning to each dollar of current earnings.

A “normal” or “fair” P/E for a stock generally reflects what investors expect for earnings growth and how they view the company’s risk. Higher expected growth or lower perceived risk can support a higher P/E, while lower growth or higher risk usually lines up with a lower P/E.

Marathon Petroleum currently trades on a P/E of 16.33x, compared with an Oil and Gas industry average of about 14.85x and a peer group average of 23.18x. Simply Wall St also calculates a Fair Ratio of 22.86x for Marathon Petroleum. This proprietary metric estimates the P/E that could be reasonable given factors such as earnings growth, profit margins, industry, market cap and company specific risks.

Because the Fair Ratio is tailored to Marathon Petroleum, it can be more informative than broad peer or industry comparisons. With the current 16.33x P/E sitting below the 22.86x Fair Ratio, this framework points to the shares as looking undervalued.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Marathon Petroleum Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are a simple way for you to attach a clear story about Marathon Petroleum to the numbers, linking your view on its future revenue, earnings and margins to a forecast and then to a Fair Value that you can compare with today’s share price.

On Simply Wall St’s Community page, Narratives let you select or build a view that fits how you see the company. The platform then keeps that view refreshed as new earnings, news or analyst inputs arrive, so your Fair Value stays aligned with the latest information.

For example, one Marathon Petroleum Narrative might line up with the more bullish analyst cohort that assumes higher revenue growth, a profit margin of about 5.7%, earnings of US$8.6b by around 2029 and a Fair Value close to US$318.81. Another might reflect the more cautious cohort that assumes revenue contraction, a 2.7% margin, earnings of US$3.4b and a Fair Value nearer US$163, showing how different stories can lead to very different conclusions about whether the current price of roughly US$224 looks high or low to you.

For Marathon Petroleum, however, we will make it really easy for you with previews of two leading Marathon Petroleum Narratives:

Each one ties a clear story about future revenue, margins and valuation to a specific Fair Value, so you can quickly see which version of the future lines up better with your own expectations.

🐂 Marathon Petroleum Bull Case

Fair Value in this narrative: US$247.18 per share

Current price relative to this Fair Value: about 9.3% below the narrative Fair Value

Revenue assumption in this narrative: about 1.42% annual growth

• Analysts in this narrative see modest revenue growth and higher profit margins supporting earnings rising to US$6.2b by around 2029, with earnings per share of US$25.93.
• The story leans on strong product demand, tight refining capacity in key regions and portfolio optimization, along with share buybacks and an investment grade balance sheet.
• Key risks focus on long term demand for fossil fuels, potential policy and carbon cost pressure on refining assets, and the smaller current role of renewables in the overall business mix.

🐻 Marathon Petroleum Bear Case

Fair Value in this narrative: US$163.00 per share

Current price relative to this Fair Value: about 37.4% above the narrative Fair Value

Revenue assumption in this narrative: about 2.23% annual decline

• This more cautious view is built around revenue contraction and thinner profit margins, with earnings in 2029 modeled at US$3.4b and earnings per share of US$14.99.
• Concerns center on refinery and midstream projects not fully earning their targeted returns if product tightness eases, sour crude spreads compress, or LNG and export infrastructure growth underwhelms.
• Potential offsets to this cautious case include high refinery utilization, supportive sour crude differentials and midstream cash flows that could keep earnings and free cash flow firmer than this narrative assumes.

If you want to move beyond these snapshots and see how other investors are joining the discussion around Marathon Petroleum, including variations between these bullish and cautious setups, See what the community is saying about Marathon Petroleum

Do you think there’s more to the story for Marathon Petroleum? Head over to our Community to see what others are saying!

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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