Marathon Petroleum Corp Valuation – February 2019 $MPC

Company Profile (excerpt from Reuters): Marathon Petroleum Corporation, incorporated on November 9, 2009, is engaged in petroleum product refining, marketing, retail and transportation businesses in the United States and the east of the Mississippi. The Company’s segments include Refining & Marketing, Speedway, and Midstream.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MPC – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $43,458,170,026 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.65 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 206.78% Pass
6. Moderate PEmg Ratio PEmg < 20 13.82 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.51 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.65 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.95 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.55
MG Growth Estimate 2.78%
MG Value $64.03
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $66.01
MG Value based on 0% Growth $38.70
Market Implied Growth Rate 2.66%
Current Price $62.91
% of Intrinsic Value 98.25%

Marathon Petroleum Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.84 in 2014 to an estimated $4.55 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 2.66% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Marathon Petroleum Corp revealed the company was trading above its Graham Number of $50.91. The company pays a dividend of $1.52 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.82, which was below the industry average of 43.92, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-39.75.

Marathon Petroleum Corp performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$39.75
Graham Number $50.91
PEmg 13.82
Current Ratio 1.65
PB Ratio 1.51
Current Dividend $1.52
Dividend Yield 2.42%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $15,873,000,000
Total Current Liabilities $9,634,000,000
Long-Term Debt $18,423,000,000
Total Assets $53,031,000,000
Intangible Assets $3,713,000,000
Total Liabilities $34,000,000,000
Shares Outstanding (Diluted Average) 456,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.99
Dec2017 $6.70
Dec2016 $2.21
Dec2015 $5.26
Dec2014 $4.39
Dec2013 $3.32
Dec2012 $4.95
Dec2011 $3.34
Dec2010 $0.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.55
Dec2017 $4.68
Dec2016 $3.79
Dec2015 $4.47
Dec2014 $3.84
Dec2013 $3.21
Dec2012 $2.71
Dec2011 $1.34
Dec2010 $0.29

Recommended Reading:

Other ModernGraham posts about the company

Marathon Petroleum Corp Valuation – April 2018 $MPC
10 Best Dividend Paying Stocks for the Enterprising Investor – December 2016
10 Best Dividend Paying Stocks for the Enterprising Investor – September 2016
7 Best Undervalued Stocks of the Week – 9/3/16
Marathon Petroleum Corp Valuation – August 2016 $MPC

Other ModernGraham posts about related companies

EOG Resources Inc Valuation – February 2019 $EOG
ConocoPhillips Valuation – February 2019 $COP
Devon Energy Corp Valuation – January 2019 $DVN
Noble Energy Inc Valuation – January 2019 $NBL
ONEOK Inc Valuation – January 2019 $OKE
Marathon Oil Corp Valuation – January 2019 $MRO
HollyFrontier Corp Valuation – January 2019 $HFC
Hess Corp Valuation – January 2019 $HES
Cimarex Energy Co Valuation – January 2019 $XEC
EQT Corp Valuation – January 2019 $EQT

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Marathon Petroleum Corp Valuation – April 2018 $MPC

Company Profile (excerpt from Reuters): Marathon Petroleum Corporation, incorporated on November 9, 2009, is engaged in petroleum product refining, marketing, retail and transportation businesses in the United States and the east of the Mississippi. The Company’s segments include Refining & Marketing, Speedway, and Midstream.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MPC – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $35,114,403,425 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.28 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 182.05% Pass
6. Moderate PEmg Ratio PEmg < 20 17.60 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.61 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.28 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.22 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.21
MG Growth Estimate 1.43%
MG Value $47.77
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $60.99
MG Value based on 0% Growth $35.75
Market Implied Growth Rate 4.55%
Current Price $74.02
% of Intrinsic Value 154.97%

Marathon Petroleum Corp does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $3.84 in 2014 to an estimated $4.21 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 4.55% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Marathon Petroleum Corp revealed the company was trading above its Graham Number of $43.78. The company pays a dividend of $1.52 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.6, which was below the industry average of 85.36, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-43.75.

Marathon Petroleum Corp scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$43.75
Graham Number $43.78
PEmg 17.60
Current Ratio 1.28
PB Ratio 2.61
Current Dividend $1.52
Dividend Yield 2.05%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $13,401,000,000
Total Current Liabilities $10,478,000,000
Long-Term Debt $12,322,000,000
Total Assets $49,047,000,000
Intangible Assets $3,586,000,000
Total Liabilities $35,014,000,000
Shares Outstanding (Diluted Average) 494,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.95
Dec2017 $6.70
Dec2016 $2.21
Dec2015 $5.26
Dec2014 $4.39
Dec2013 $3.32
Dec2012 $4.95
Dec2011 $3.34
Dec2010 $0.87

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.21
Dec2017 $4.68
Dec2016 $3.79
Dec2015 $4.47
Dec2014 $3.84
Dec2013 $3.21
Dec2012 $2.71
Dec2011 $1.34
Dec2010 $0.29

Recommended Reading:

Other ModernGraham posts about the company

Marathon Petroleum Corporation Analysis – 2015 Update $MPC
28 Companies in the Spotlight This Week – 11/1/14
Marathon Petroleum Corporation Annual Valuation – 2014 $MPC

Other ModernGraham posts about related companies

EOG Resources Inc Valuation – April 2018 $EOG
ConocoPhillips Valuation – April 2018 $COP
Devon Energy Corp Valuation – March 2018 $DVN
Noble Energy Inc Valuation – March 2018 $NBL
ONEOK Inc Valuation – March 2018 $OKE
Marathon Oil Corp Valuation – March 2018 $MRO
Hess Corp Valuation – March 2018 $HES
Cimarex Energy Co Valuation – Initial Coverage $XEC
EQT Corporation Valuation – March 2018 $EQT
Helmerich & Payne Inc Valuation – March 2018 $HP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Marathon Petroleum Corp Valuation – August 2016 $MPC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Marathon Petroleum Corp (MPC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Marathon Petroleum Corporation is engaged in petroleum product refining, marketing, retail and transportation businesses in the United States and the east of the Mississippi. The Company’s segments include Refining & Marketing, Speedway, and Midstream. Its Refining & Marketing segment refines crude oil and other feedstocks at its approximately seven refineries in the Gulf Coast and Midwest regions of the United States, purchases ethanol and refined products for resale and distributes refined products. It sells refined products to wholesale marketing customers domestically and internationally, buyers on the spot market, its Speedway business segment and to independent entrepreneurs operating Marathon retail outlets. The Speedway segment sells transportation fuels and convenience products in the retail market in the Midwest, East Coast and Southeast. The Midstream segment gathers, processes and transports natural gas, and transports and stores crude oil and refined products.

MPC Chart

MPC data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MPC – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $22,334,570,734 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.52 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 38243.33% Pass
6. Moderate PEmg Ratio PEmg < 20 11.52 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.66 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.52 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.13 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MPC value chart August 2016

EPSmg $3.67
MG Growth Estimate 5.30%
MG Value $70.15
Opinion Undervalued
MG Grade B
MG Value based on 3% Growth $53.22
MG Value based on 0% Growth $31.20
Market Implied Growth Rate 1.51%
Current Price $42.29
% of Intrinsic Value 60.29%

Marathon Petroleum Corp is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.71 in 2012 to an estimated $3.67 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.51% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Marathon Petroleum Corp revealed the company was trading above its Graham Number of $32.64. The company pays a dividend of $1.28 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.52, which was below the industry average of 55.24, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-38.3.

Marathon Petroleum Corp performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

MPC charts August 2016

Net Current Asset Value (NCAV) -$38.30
Graham Number $32.64
PEmg 11.52
Current Ratio 1.52
PB Ratio 1.66
Current Dividend $1.28
Dividend Yield 3.03%
Number of Consecutive Years of Dividend Growth 6

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $10,304,000,000
Total Current Liabilities $6,782,000,000
Long-Term Debt $11,032,000,000
Total Assets $44,133,000,000
Intangible Assets $3,648,000,000
Total Liabilities $30,643,000,000
Shares Outstanding (Diluted Average) 531,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.85
Dec2015 $5.26
Dec2014 $4.39
Dec2013 $3.32
Dec2012 $4.95
Dec2011 $3.34
Dec2010 $0.87

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.67
Dec2015 $4.47
Dec2014 $3.84
Dec2013 $3.21
Dec2012 $2.71
Dec2011 $1.34
Dec2010 $0.29

Recommended Reading:

Other ModernGraham posts about the company

Marathon Petroleum Corporation Analysis – 2015 Update $MPC
28 Companies in the Spotlight This Week – 11/1/14
Marathon Petroleum Corporation Annual Valuation – 2014 $MPC

Other ModernGraham posts about related companies

Magellan Midstream Partners LP Valuation – August 2016 $MMP
Ensco PLC Valuation – August 2016 $ESV
Enterprise Products Partners LP Valuation – August 2016 $EPD
Tidewater Inc Valuation – August 2016 $TDW
Occidental Petroleum Corp Valuation – August 2016 $OXY
Valero Energy Corporation – August 2016 $VLO
Chevron Corp Valuation – August 2016 $CVX
Exxon Mobil Corporation Valuation – August 2016 $XOM
National-Oilwell Varco Inc Valuation – August 2016 $NOV
Newfield Exploration Co Valuation – August 2016 $NFX

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Marathon Petroleum Corporation Analysis – 2015 Update $MPC

MPClogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – July 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Marathon Petroleum Corporation (MPC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Marathon Petroleum Corporation (MPC) is engaged petroleum product refining, marketing, retail and transportation businesses. It has three segments: Refining & Marketing, which refines crude oil and other feedstocks at its seven refineries in the Gulf Coast and Midwest regions of the United States, purchases ethanol and refined products for resale and distributes refined products; Speedway, which sells transportation fuels and convenience products in the retail market in the Midwest, East Coast and Southeast, and Pipeline Transportation, which transports crude oil and other feedstocks to its refineries and other locations, delivers refined products to wholesale and retail market areas and includes the aggregated operations of MPLX LP.

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Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $56.80
MG Value $172.12
MG Opinion Undervalued
Value Based on 3% Growth $64.82
Value Based on 0% Growth $38.00
Market Implied Growth Rate 2.10%
Net Current Asset Value (NCAV) -$14.17
PEmg 12.71
Current Ratio 1.32
PB Ratio 2.76

Balance Sheet – March 2015

Current Assets $11,053,000,000
Current Liabilities $8,346,000,000
Total Debt $5,967,000,000
Total Assets $30,182,000,000
Intangible Assets $1,566,000,000
Total Liabilities $18,844,000,000
Outstanding Shares 550,000,000

Earnings Per Share

2015 (estimate) $5.26
2014 $4.39
2013 $3.32
2012 $4.95
2011 $3.34
2010 $0.87

Earnings Per Share – ModernGraham

2015 (estimate) $4.47
2014 $3.84
2013 $3.21
2012 $2.71
2011 $1.35
2010 $0.29

Dividend History

Free Cash Flow

Conclusion:

Marathon Petroleum Corporation does not qualify for either the Defensive Investor and the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, and the short history as a stand-alone company.  The Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a speculative attitude.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.35 in 2011 to an estimated $4.47 for 2015.  This level of earnings growth outpaces the market’s implied estimate of 2.1% annual earnings growth over the next 7-10 years, and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Marathon Petroleum Corporation (MPC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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Marathon Petroleum Corporation Annual Valuation – 2014 $MPC

MPClogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies to Research for the Defensive Investor – October 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Marathon Petroleum Corporation (MPC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Marathon Petroleum Corporation (Marathon Petroleum) is engaged in refining, transporting and marketing petroleum products in the United States. The Company’s refining, marketing and transportation operations are concentrated in the Midwest, Gulf Coast and Southeast regions of the United States. These include a six-plant refining network, a terminal and transportation system, and wholesale and retail marketing operations. This includes both the Marathon Brand and Marathon Petroleum’s wholly owned retail marketing subsidiary, Speedway LLC and operated retail gasoline and convenience stores. As of December 31, 2012, the Company leased or owned approximately 1,944 leased and 27 owned railcars of various sizes and capacities for movement and storage of refined products.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $87.18
MG Value $266.45
MG Opinion Undervalued
Value Based on 3% Growth $100.35
Value Based on 0% Growth $58.83
Market Implied Growth Rate 2.05%
Net Current Asset Value (NCAV) -$17.85
PEmg 12.60
Current Ratio 1.23
PB Ratio 2.37

Balance Sheet – June 2014

Current Assets $13,596,000,000
Current Liabilities $11,055,000,000
Total Debt $3,612,000,000
Total Assets $29,376,000,000
Intangible Assets $937,000,000
Total Liabilities $18,756,000,000
Outstanding Shares 289,000,000

Earnings Per Share

2014 (estimate) $6.50
2013 $6.64
2012 $9.89
2011 $6.67
2010 $1.74

Earnings Per Share – ModernGraham

2014 (estimate) $6.92
2013 $6.42
2012 $5.42
2011 $2.69
2010 $0.58

Dividend History

Conclusion:

Marathon Petroleum Corporation does not satisfy either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, as well as the short earnings and dividend history.  The Enterprising Investor has concerns with the level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.58 in 2010 to an estimated $6.92 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 2.05% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Marathon Petroleum Corporation (MPC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Marathon Petroleum Corporation (MPC) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Cabot Oil & Gas Corp Valuation – March 2019 #COG

Company Profile (excerpt from Reuters): Cabot Oil & Gas Corporation, incorporated on December 14, 1989, is an independent oil and gas company engaged in the development, exploitation and exploration of oil and gas properties. The Company operates in the segment of natural gas and oil development, exploitation, exploration and production, in the continental United States. Its assets are concentrated in areas with known hydrocarbon resources, which are conducive to multi-well, repeatable drilling programs. As of December 31, 2016, the Company’s exploration, development and production operations were primarily concentrated in two unconventional plays: the Marcellus Shale in northeast Pennsylvania and the Eagle Ford Shale in south Texas. The Company also has operations in various other unconventional and conventional plays throughout the continental United States.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of COG – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,990,606,932 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.90 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 240.83% Pass
6. Moderate PEmg Ratio PEmg < 20 36.67 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.39 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.90 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.77 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.71
MG Growth Estimate 15.00%
MG Value $27.26
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $10.27
MG Value based on 0% Growth $6.02
Market Implied Growth Rate 14.08%
Current Price $25.96
% of Intrinsic Value 95.24%

Cabot Oil & Gas Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.17 in 2015 to an estimated $0.71 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 14.08% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Cabot Oil & Gas Corporation revealed the company was trading above its Graham Number of $12.44. The company pays a dividend of $0.25 per share, for a yield of 1% Its PEmg (price over earnings per share – ModernGraham) was 36.67, which was below the industry average of 58.42, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.61.

Cabot Oil & Gas Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.61
Graham Number $12.44
PEmg 36.67
Current Ratio 1.90
PB Ratio 5.39
Current Dividend $0.25
Dividend Yield 0.96%
Number of Consecutive Years of Dividend Growth 2

Useful Links:

 

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $544,545,000
Total Current Liabilities $287,264,000
Long-Term Debt $1,226,104,000
Total Assets $4,198,829,000
Intangible Assets $0
Total Liabilities $2,110,670,000
Shares Outstanding (Diluted Average) 433,333,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.42
Dec2018 $1.24
Dec2017 $0.22
Dec2016 -$0.91
Dec2015 -$0.28
Dec2014 $0.25
Dec2013 $0.66
Dec2012 $0.31
Dec2011 $0.29
Dec2010 $0.25
Dec2009 $0.36
Dec2008 $0.52
Dec2007 $0.43
Dec2006 $0.81
Dec2005 $0.37
Dec2004 $0.15
Dec2003 $0.05
Dec2002 $0.03
Dec2001 $0.13
Dec2000 $0.09
Dec1999 $0.02

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.71
Dec2018 $0.27
Dec2017 -$0.15
Dec2016 -$0.22
Dec2015 $0.17
Dec2014 $0.38
Dec2013 $0.42
Dec2012 $0.31
Dec2011 $0.33
Dec2010 $0.39
Dec2009 $0.48
Dec2008 $0.51
Dec2007 $0.46
Dec2006 $0.41
Dec2005 $0.19
Dec2004 $0.09
Dec2003 $0.06

Recommended Reading:

Other ModernGraham posts about the company

Cabot Oil & Gas Corp Valuation – June 2018 $COG
Cabot Oil & Gas Corp Valuation – March 2017 $COG
Cabot Oil & Gas Corp Valuation – December 2015 Update $COG
5 Speculative and Overvalued Companies to Avoid – December 2014
32 Companies in the Spotlight This Week – 12/6/14

Other ModernGraham posts about related companies

Concho Resources Inc Valuation – March 2019 #CXO
Valero Energy Corp Valuation – March 2019 #VLO
Occidental Petroleum Corp Valuation – March 2019 #OXY
Phillips 66 Valuation – March 2019 #PSX
Halliburton Co Valuation – March 2019 #HAL
Kinder Morgan Inc Valuation – February 2019 $KMI
National Oilwell Varco Inc Valuation – February 2019 $NOV
Diamondback Energy Inc Valuation – February 2019 $FANG
TechnipFMC PLC Valuation – February 2019 $FTI
Marathon Petroleum Corp Valuation – February 2019 $MPC

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Concho Resources Inc Valuation – March 2019 #CXO

Company Profile (excerpt from Reuters): Concho Resources Inc., incorporated on February 22, 2006, is an independent oil and natural gas company engaged in the acquisition, development and exploration of oil and natural gas properties. The Company’s four operating areas include the Northern Delaware Basin, the Southern Delaware Basin, the Midland Basin and the New Mexico Shelf. As of December 31, 2016, the Company’s operations were focused in the Permian Basin, which underlies an area of Southeast New Mexico and West Texas approximately 250 miles wide and 300 miles long. The Permian Basin is an oil and natural gas producing region in the United States and is characterized by multiple producing horizons and enhanced recovery potential. The majority of the rigs running in the Permian Basin are drilling horizontal wells. As of December 31, 2016, the Company produced approximately 55.1 million barrels of oil equivalent (MMBoe) of oil and natural gas.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of CXO – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $20,771,509,312 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.04 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 97.50% Pass
6. Moderate PEmg Ratio PEmg < 20 23.04 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.10 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.04 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 79.13 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $4.49
MG Growth Estimate 8.54%
MG Value $114.93
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $65.17
MG Value based on 0% Growth $38.20
Market Implied Growth Rate 7.27%
Current Price $103.55
% of Intrinsic Value 90.10%

Concho Resources Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.86 in 2015 to an estimated $4.49 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 7.27% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Concho Resources Inc revealed the company was trading above its Graham Number of $83.04. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 23.04, which was below the industry average of 58.42, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-30.71.

Concho Resources Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$30.71
Graham Number $83.04
PEmg 23.04
Current Ratio 1.04
PB Ratio 1.10
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $1,409,000,000
Total Current Liabilities $1,356,000,000
Long-Term Debt $4,194,000,000
Total Assets $26,294,000,000
Intangible Assets $2,243,000,000
Total Liabilities $7,526,000,000
Shares Outstanding (Diluted Average) 199,155,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.27
Dec2018 $13.25
Dec2017 $6.41
Dec2016 -$10.85
Dec2015 $0.54
Dec2014 $4.88
Dec2013 $2.39
Dec2012 $4.15
Dec2011 $5.28
Dec2010 $2.18
Dec2009 -$0.12
Dec2008 $3.46
Dec2007 $0.38
Dec2006 $0.59
Dec2005 -$0.70
Dec2004 -$3.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.49
Dec2018 $4.35
Dec2017 $0.16
Dec2016 -$1.90
Dec2015 $2.86
Dec2014 $3.94
Dec2013 $3.24
Dec2012 $3.44
Dec2011 $2.80
Dec2010 $1.48
Dec2009 $0.99
Dec2008 $1.05
Dec2007 -$0.32
Dec2006 -$0.69
Dec2005 -$1.16
Dec2004 -$1.16

Recommended Reading:

Other ModernGraham posts about the company

Concho Resources Inc Valuation – June 2018 $CXO
Most Overvalued Stocks of the S&P 500 – March 2017
Concho Resources Inc Valuation – Initial Coverage $CXO

Other ModernGraham posts about related companies

Phillips 66 Valuation – March 2019 #PSX
Halliburton Co Valuation – March 2019 #HAL
Kinder Morgan Inc Valuation – February 2019 $KMI
National Oilwell Varco Inc Valuation – February 2019 $NOV
Diamondback Energy Inc Valuation – February 2019 $FANG
TechnipFMC PLC Valuation – February 2019 $FTI
Marathon Petroleum Corp Valuation – February 2019 $MPC
Baker Hughes, a GE Co Valuation – February 2019 $BHGE
EOG Resources Inc Valuation – February 2019 $EOG
ConocoPhillips Valuation – February 2019 $COP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Valero Energy Corp Valuation – March 2019 #VLO

Company Profile (excerpt from Reuters): Valero Energy Corporation (Valero), incorporated on June 8, 1981, is an independent petroleum refiner and ethanol producer. The Company’s segments include refining, ethanol and Valero Energy Partners LP (VLP). The refining segment includes its refining operations and the associated marketing activities. The ethanol segment includes its ethanol operations and the associated marketing activities, and logistics assets that support its ethanol operations. The Company owns logistics assets (crude oil pipelines, refined petroleum product pipelines, terminals, tanks, marine docks, truck rack bays and other assets) that support its refining operations. Some of these assets are owned by VLP, which is a midstream master limited partnership owned by the Company. VLP’s assets include crude oil and refined petroleum products pipeline and terminal systems in the United States Gulf Coast and the United States Mid-Continent regions. The Company’s refineries produce conventional gasolines, premium gasolines, gasoline meeting the specifications of the California Air Resources Board (CARB), diesel, low-sulfur diesel, ultra-low-sulfur diesel, CARB diesel, other distillates, jet fuel, asphalt, petrochemicals, lubricants and other refined petroleum products.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of VLO – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $35,530,599,884 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.65 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 184.13% Pass
6. Moderate PEmg Ratio PEmg < 20 12.05 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.58 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.65 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.28 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $7.06
MG Growth Estimate 2.00%
MG Value $88.28
Opinion Fairly Valued
MG Grade B
MG Value based on 3% Growth $102.38
MG Value based on 0% Growth $60.02
Market Implied Growth Rate 1.77%
Current Price $85.08
% of Intrinsic Value 96.37%

Valero Energy Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $6.23 in 2015 to an estimated $7.06 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 1.77% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Valero Energy Corporation revealed the company was trading above its Graham Number of $84.94. The company pays a dividend of $3.2 per share, for a yield of 3.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 12.05, which was below the industry average of 58.42, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-23.1.

Valero Energy Corporation performs fairly well in the ModernGraham grading system, scoring a B.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$23.10
Graham Number $84.94
PEmg 12.05
Current Ratio 1.65
PB Ratio 1.58
Current Dividend $3.20
Dividend Yield 3.76%
Number of Consecutive Years of Dividend Growth 8

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $17,675,000,000
Total Current Liabilities $10,724,000,000
Long-Term Debt $8,871,000,000
Total Assets $50,155,000,000
Intangible Assets $567,000,000
Total Liabilities $27,424,000,000
Shares Outstanding (Diluted Average) 422,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.28
Dec2018 $7.29
Dec2017 $9.16
Dec2016 $4.94
Dec2015 $7.99
Dec2014 $6.85
Dec2013 $4.97
Dec2012 $3.75
Dec2011 $3.68
Dec2010 $0.57
Dec2009 -$3.67
Dec2008 -$2.16
Dec2007 $8.88
Dec2006 $8.64
Dec2005 $6.10
Dec2004 $3.27
Dec2003 $1.27
Dec2002 $0.21
Dec2001 $2.21
Dec2000 $1.40
Dec1999 $0.06

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $7.06
Dec2018 $7.38
Dec2017 $7.21
Dec2016 $6.06
Dec2015 $6.23
Dec2014 $4.89
Dec2013 $3.22
Dec2012 $1.71
Dec2011 $0.95
Dec2010 $0.54
Dec2009 $1.54
Dec2008 $4.41
Dec2007 $7.00
Dec2006 $5.34
Dec2005 $3.33
Dec2004 $1.86
Dec2003 $1.11

Recommended Reading:

Other ModernGraham posts about the company

Vlaero Energy Corp Valuation – June 2018 $VLO
11 Best Stocks for Value Investors This Week – 3/4/17
Valero Energy Corp Valuation – February 2017 $VLO
Most Undervalued Stocks of the S&P 500 – February 2017
10 Undervalued Stocks for the Enterprising Investor – February 2017

Other ModernGraham posts about related companies

Phillips 66 Valuation – March 2019 #PSX
Halliburton Co Valuation – March 2019 #HAL
Kinder Morgan Inc Valuation – February 2019 $KMI
National Oilwell Varco Inc Valuation – February 2019 $NOV
Diamondback Energy Inc Valuation – February 2019 $FANG
TechnipFMC PLC Valuation – February 2019 $FTI
Marathon Petroleum Corp Valuation – February 2019 $MPC
Baker Hughes, a GE Co Valuation – February 2019 $BHGE
EOG Resources Inc Valuation – February 2019 $EOG
ConocoPhillips Valuation – February 2019 $COP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Occidental Petroleum Corp Valuation – March 2019 #OXY

Company Profile (excerpt from Reuters): Occidental Petroleum Corporation (Occidental), incorporated on April 9, 1986, is an oil and gas exploration and production company. The Company operates through three segments: oil and gas, chemical (OxyChem), and midstream and marketing. The oil and gas segment explores for, develops and produces oil and condensate, natural gas liquids (NGLs) and natural gas. The OxyChem segment manufactures and markets basic chemicals and vinyls. The midstream and marketing segment gathers, processes, transports, stores, purchases and markets oil, condensate, NGLs, natural gas, carbon dioxide (CO2) and power. It also trades around its assets, including transportation and storage capacity. Additionally, the midstream and marketing segment invests in entities that conduct similar activities. Occidental’s domestic upstream oil and gas operations are located in New Mexico and Texas. Its international operations are located in Bolivia, Colombia, Oman, Qatar and the United Arab Emirates (UAE).

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of OXY – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $48,967,841,552 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -55.40% Fail
6. Moderate PEmg Ratio PEmg < 20 42.46 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.31 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.05 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.54
MG Growth Estimate 15.00%
MG Value $59.24
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $22.31
MG Value based on 0% Growth $13.08
Market Implied Growth Rate 16.98%
Current Price $65.33
% of Intrinsic Value 110.28%

Occidental Petroleum Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.42 in 2015 to an estimated $1.54 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.98% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Occidental Petroleum Corporation revealed the company was trading above its Graham Number of $32.19. The company pays a dividend of $3.1 per share, for a yield of 4.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 42.46, which was below the industry average of 58.42, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.66.

Occidental Petroleum Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$16.66
Graham Number $32.19
PEmg 42.46
Current Ratio 1.34
PB Ratio 2.31
Current Dividend $3.10
Dividend Yield 4.75%
Number of Consecutive Years of Dividend Growth 17

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $9,932,000,000
Total Current Liabilities $7,412,000,000
Long-Term Debt $10,201,000,000
Total Assets $43,854,000,000
Intangible Assets $0
Total Liabilities $22,524,000,000
Shares Outstanding (Diluted Average) 755,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.63
Dec2018 $5.39
Dec2017 $1.70
Dec2016 -$0.75
Dec2015 -$10.23
Dec2014 $0.79
Dec2013 $7.32
Dec2012 $5.67
Dec2011 $8.32
Dec2010 $5.56
Dec2009 $3.58
Dec2008 $8.34
Dec2007 $6.44
Dec2006 $4.87
Dec2005 $6.48
Dec2004 $2.80
Dec2003 $1.98
Dec2002 $1.31
Dec2001 $1.55
Dec2000 $2.13
Dec1999 $0.62

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.54
Dec2018 $0.79
Dec2017 -$1.09
Dec2016 -$1.47
Dec2015 -$0.42
Dec2014 $4.83
Dec2013 $6.60
Dec2012 $6.25
Dec2011 $6.51
Dec2010 $5.66
Dec2009 $5.79
Dec2008 $6.52
Dec2007 $5.25
Dec2006 $4.26
Dec2005 $3.58
Dec2004 $2.07
Dec2003 $1.64

Recommended Reading:

Other ModernGraham posts about the company

Occidental Petroleum Corp Valuation – June 2018 $OXY
Most Overvalued Stocks of the S&P 500 – March 2017
Occidental Petroleum Corp Valuation – February 2017 $OXY
Occidental Petroleum Corp Valuation – August 2016 $OXY
Occidental Petroleum Corporation – 2015 Update $OXY

Other ModernGraham posts about related companies

Phillips 66 Valuation – March 2019 #PSX
Halliburton Co Valuation – March 2019 #HAL
Kinder Morgan Inc Valuation – February 2019 $KMI
National Oilwell Varco Inc Valuation – February 2019 $NOV
Diamondback Energy Inc Valuation – February 2019 $FANG
TechnipFMC PLC Valuation – February 2019 $FTI
Marathon Petroleum Corp Valuation – February 2019 $MPC
Baker Hughes, a GE Co Valuation – February 2019 $BHGE
EOG Resources Inc Valuation – February 2019 $EOG
ConocoPhillips Valuation – February 2019 $COP

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Phillips 66 Valuation – March 2019 #PSX

Company Profile (excerpt from Reuters): Phillips 66, incorporated on November 10, 2011, is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. The Company operates through four segments: Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). The Midstream segment gathers, processes, transports and markets natural gas, and transports, stores, fractionates and markets natural gas liquids (NGLs) in the United States. The Chemicals segment consists of its equity investment in Chevron Phillips Chemical Company LLC (CPChem), which manufactures and markets petrochemicals and plastics. The Refining segment buys, sells and refines crude oil and other feedstocks at refineries, primarily in the United States and Europe. The M&S segment purchases for resale and markets refined petroleum products, such as gasolines, distillates and aviation fuels, primarily in the United States and Europe, as well as includes the manufacturing and marketing of specialty products, and power generation operations.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PSX – March 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $44,040,480,834 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.48 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 343.98% Pass
6. Moderate PEmg Ratio PEmg < 20 11.54 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.66 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.48 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.60 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $8.39
MG Growth Estimate 3.34%
MG Value $127.43
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $121.72
MG Value based on 0% Growth $71.35
Market Implied Growth Rate 1.52%
Current Price $96.89
% of Intrinsic Value 76.04%

Phillips 66 does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $6.87 in 2015 to an estimated $8.39 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 1.52% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Phillips 66 revealed the company was trading above its Graham Number of $93.06. The company pays a dividend of $3.1 per share, for a yield of 3.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.54, which was below the industry average of 58.42, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-30.01.

Phillips 66 receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$30.01
Graham Number $93.06
PEmg 11.54
Current Ratio 1.48
PB Ratio 1.66
Current Dividend $3.10
Dividend Yield 3.20%
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $13,209,000,000
Total Current Liabilities $8,935,000,000
Long-Term Debt $11,093,000,000
Total Assets $54,302,000,000
Intangible Assets $4,139,000,000
Total Liabilities $27,149,000,000
Shares Outstanding (Diluted Average) 464,528,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.12
Dec2018 $11.80
Dec2017 $9.85
Dec2016 $2.92
Dec2015 $7.73
Dec2014 $8.33
Dec2013 $6.02
Dec2012 $6.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.39
Dec2018 $8.73
Dec2017 $7.12
Dec2016 $5.94
Dec2015 $6.87
Dec2014 $5.68
Dec2013 $3.73
Dec2012 $2.16

Recommended Reading:

Other ModernGraham posts about the company

Phillips 66 Valuation – April 2018 $PSX
Phillips 66 Valuation – August 2016 $PSX
10 Best Dividend Paying Stocks for the Enterprising Investor – August 2016
5 Undervalued Stocks Near Lows for Enterprising Value Investors – Aug 2016
10 Companies Benjamin Graham Would Invest In Today – June 2016

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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