Today we're going to take a closer look at large-cap Energy company Marathon Petroleum, whose shares are currently trading at $154.12. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
Marathon Petroleum Is Reasonably Valued:
Marathon Petroleum Corporation, together with its subsidiaries, operates as an integrated downstream energy company primarily in the United States. The company belongs to the Energy sector, which has an average price to earnings (P/E) ratio of 7.54 and an average price to book (P/B) ratio of 1.68. In contrast, Marathon Petroleum has a trailing 12 month P/E ratio of 5.7 and a P/B ratio of 2.43.
When we divide Marathon Petroleum's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.38. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Exceptional EPS Growth at the Expense of a Highly Leveraged Balance Sheet:
| 2018-02-28 | 2019-02-28 | 2020-02-28 | 2021-02-26 | 2022-02-24 | 2023-02-23 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $74,104 | $86,086 | $111,148 | $69,897 | $120,451 | $178,236 |
| Gross Margins | 10.0% | 10.0% | 11.0% | 6.0% | 9.0% | 15.0% |
| Operating Margins | 5% | 5% | 4% | -4% | 3% | 11% |
| Net Margins | 5.0% | 3.0% | 2.0% | -14.0% | 8.0% | 8.0% |
| Net Income (MM) | $3,432 | $2,780 | $2,637 | -$9,826 | $9,738 | $14,516 |
| Net Interest Expense (MM) | -$674 | -$993 | -$1,229 | -$1,365 | -$1,483 | -$1,000 |
| Depreciation & Amort. (MM) | -$2,114 | -$2,170 | -$3,225 | -$3,375 | -$3,364 | -$3,215 |
| Earnings Per Share | $6.7 | $5.29 | $3.97 | -$15.14 | $15.99 | $22.37 |
| EPS Growth | n/a | -21.04% | -24.95% | -481.36% | 205.61% | 39.9% |
| Diluted Shares (MM) | 512 | 526 | 664 | 649 | 609 | 649 |
| Free Cash Flow (MM) | $9,344 | $9,337 | $14,204 | $5,056 | $5,671 | $18,691 |
| Capital Expenditures (MM) | -$2,732 | -$3,179 | -$4,763 | -$2,637 | -$1,311 | -$2,330 |
| Net Current Assets (MM) | -$13,818 | -$29,864 | -$24,991 | -$26,651 | -$21,296 | -$19,575 |
| Long Term Debt (MM) | $12,322 | $26,980 | $28,020 | $28,730 | $24,968 | $25,634 |
| Net Debt / EBITDA | 1.71 | 3.94 | 3.35 | 39.66 | 2.05 | 0.65 |
Marathon Petroleum has slimmer gross margins than its peers, weak operating margins with a positive growth rate, and a highly leveraged balance sheet. On the other hand, the company has exceptional EPS growth working in its favor. Furthermore, Marathon Petroleum has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and a decent current ratio.
