As value investors, we’re always on the hunt for stocks trading below their intrinsic worth, offering a margin of safety and potential for outsized returns. Today, I’m diving into Marathon Petroleum Corporation (MPC), a leading player in the oil refining and marketing industry, to assess whether its current price of $170.08 represents a buying opportunity. Using the Buffett Valuation Method and the McGrew Valuation Method, I’ve calculated MPC’s intrinsic value based on five years of financial data. The results are striking, suggesting MPC could be a “Screaming Buy.” Let’s break it down.
Understanding MPC and the Valuation Approach
Marathon Petroleum, headquartered in Findlay, Ohio, operates an extensive network of refineries and pipelines across the U.S., making it a key player in the energy sector. Its stock price has fluctuated with oil prices and refining margins, but at $170.08, is it undervalued? To find out, I applied two robust valuation models outlined in a detailed investment framework: the Buffett Valuation Method, inspired by Warren Buffett’s discounted cash flow (DCF) approach, and the McGrew Valuation Method, which adjusts growth assumptions for dynamic companies.
Both methods rely on Free Cash Flow (FCF), shares outstanding, and growth projections. I sourced FCF and shares data from MPC’s quarterly financials, covering 2020–2024, and used the latest shares outstanding (309 million as of Q1 2025). The closing price of $170.08 was provided, though I couldn’t cross-check it due to limited access to real-time data sources like Yahoo Finance. For growth, I calculated a 3-year FCF Compound Annual Growth Rate (CAGR) from 2021–2024, as 2020’s negative FCF (-$368M) skewed the 5-year calculation. The 3-year CAGR was 6.56%, classifying MPC as a stable, non-growth stock with a 5% growth rate for Years 1–10 and a 2.5% perpetual growth rate.
Buffett Valuation Method: A Conservative Estimate
The Buffett method projects FCF over 10 years, calculates a terminal value, and discounts cash flows to the present using an 8% discount rate (4% Treasury yield + 4% risk premium). Starting with 2024’s FCF of $5,132 million, I projected FCF at 5% growth, reaching $8,359.5 million by Year 10. The terminal value, calculated as Year 10 FCF × (1 + 2.5%) ÷ (8% – 2.5%), was $155,790.9 million. Discounting all cash flows back to today yielded a total present value of $116,444.1 million. Dividing by 309 million shares, the intrinsic value per share is $376.82. Applying a 25% margin of safety, the target price is $282.62.
McGrew Valuation Method: Mirroring Buffett for Stability
The McGrew method tailors growth assumptions for dynamic firms, but since MPC’s 3-year CAGR (6.56%) is below 10%, it mirrors the Buffett method for non-growth stocks. Using the same 5% growth rate, 2.5% perpetual growth, and 8% discount rate, the calculations are identical: an intrinsic value of $376.82 per share and a target price of $282.62 with a 25% margin of safety.
Valuation Status: A Screaming Buy?
With an intrinsic value of $376.82, I compared MPC’s closing price of $170.08 to determine its valuation status:
- Screaming Buy: Price ≤ $282.62 (Intrinsic Value × 0.75)
- Buy: $282.62 < Price ≤ $350.44 (Intrinsic Value × 0.93)
- Hold: $354.21 < Price ≤ $508.71 (Intrinsic Value × 1.35)
- Overvalued: Price > $508.71
At $170.08, MPC is well below the $282.62 threshold, earning a Screaming Buy rating for both methods. This suggests the market may be undervaluing MPC’s cash-generating ability, offering a potential bargain for investors.
Results Table
| Stock Ticker | Valuation Method | Intrinsic Value per Share | Price with 25% Margin of Safety | Last Closing Price | Valuation Status |
|---|---|---|---|---|---|
| MPC | Buffett Valuation | $376.82 | $282.62 | $170.08 | Screaming Buy |
| MPC | McGrew Valuation | $376.82 | $282.62 | $170.08 | Screaming Buy |
Key Assumptions and Limitations
The analysis assumes a conservative 5% growth rate based on the 3-year CAGR, reflecting MPC’s stable but not explosive growth. The 8% discount rate aligns with the framework’s guidelines, balancing risk and opportunity cost. However, limitations include:
- Negative FCF in 2020: This forced a 3-year CAGR calculation, potentially underestimating long-term growth.
- Unverified Closing Price: Without access to Yahoo Finance or Google Finance, I relied on the provided $170.08, which may not reflect the latest trading day (June 17, 2025).
- Identical Valuations: The McGrew method’s non-growth classification made it redundant, limiting methodological diversity.
- Data Aggregation: Quarterly FCF was summed to annual, which may mask seasonal fluctuations.
Why MPC Could Be a Winner
MPC’s strong FCF generation, even in volatile energy markets, supports its high intrinsic value. At $170.08, the stock trades at a significant discount, potentially driven by short-term market pessimism about oil prices or refining margins. For long-term investors, this gap offers a compelling opportunity, especially with a 25% margin of safety cushioning against downside risks.
Final Thoughts
Marathon Petroleum’s intrinsic value of $376.82 per share, compared to its $170.08 closing price, signals a rare “Screaming Buy” opportunity. While my analysis is robust, investors should verify the closing price and explore external growth forecasts when possible. If MPC’s fundamentals hold, this could be a value investor’s dream stock. Are you adding MPC to your portfolio?
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