Is Marathon Petroleum (MPC) Still Attractive After Recent Share Price Volatility?

• If you are wondering whether Marathon Petroleum's share price still offers value after a strong multi year run, it helps to break the story into what the market has done, what is driving sentiment, and how that lines up with the numbers.
• The stock recently closed at US$170.42, with a 4.0% return over the past 7 days, a 10.6% decline over 30 days, and returns of 3.2% year to date, 23.0% over 1 year, 56.2% over 3 years, and a very large gain over 5 years.
• Recent news flow around Marathon Petroleum has included ongoing commentary on refining margins, capital allocation decisions, and the broader energy sector. Together, these factors help frame why the price has been moving in both directions over shorter periods. These themes give useful context for judging whether the current share price still lines up with what you think the business is worth.
• On Simply Wall St's 6 point valuation framework, Marathon Petroleum scores 4 out of 6, which suggests some checks point to possible undervaluation and some do not. In the sections that follow, we look at what different valuation approaches say about the stock, and then circle back at the end to a broader way of thinking about its valuation story.

Marathon Petroleum delivered 23.0% 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 takes estimates of a company’s future cash flows and discounts them back to today using a required rate of return. The goal is to estimate what those future cash flows are worth in today’s dollars.

For Marathon Petroleum, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections. The latest twelve month free cash flow is about US$5.1b. Analysts provide specific estimates for the next few years, and Simply Wall St then extrapolates further, with projected free cash flow of US$8.5b in 2035, discounted back to today as part of a ten year forecast.

Pulling those discounted cash flows together gives an estimated intrinsic value of US$531.26 per share. Compared with the recent share price of US$170.42, the DCF output suggests the stock is around 67.9% undervalued on these assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Marathon Petroleum is undervalued by 67.9%. Track this in your watchlist or portfolio, or discover 875 more undervalued stocks based on cash flows.

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 a profitable company like Marathon Petroleum, the P/E ratio is a useful way to see what investors are currently willing to pay for each dollar of earnings. In general, higher growth expectations and lower perceived risk tend to support a higher, or more generous, P/E, while slower growth and higher risk usually line up with a lower P/E.

Marathon Petroleum currently trades on a P/E of 17.79x. That sits above the Oil and Gas industry average of 13.13x, but below the peer group average of 30.13x. To sharpen that comparison, Simply Wall St also calculates a proprietary “Fair Ratio” for the stock of 20.91x. This is an estimate of what might be a more suitable P/E given factors such as earnings growth, profit margins, industry, market cap and company specific risks.

This Fair Ratio can be more useful than a simple industry or peer comparison because it adjusts for the company’s own characteristics rather than assuming all refiners or energy names deserve the same multiple. Comparing the Fair Ratio of 20.91x with the current P/E of 17.79x suggests Marathon Petroleum’s share price is below that fair level on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1447 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Marathon Petroleum Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce Narratives. In this approach, you set a clear story for Marathon Petroleum, link that story to specific forecasts for revenue, earnings and margins, and then compare the resulting fair value with the current price. You can do this using an easy tool on Simply Wall St's Community page that updates as new news or earnings arrive. For example, one investor might build a narrative that leans toward the higher analyst fair value range near US$200.67 to US$220 based on confidence in capital returns. Another might anchor closer to the lower analyst price target of US$142 because they are more cautious about refining exposure and long term fuel demand. Both can quickly see how their own narrative lines up against the latest market price.

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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