# An Intrinsic Value Calculation For MPLX LP (MPLX) Shows It’s 38.55% Undervalued

How far off is MPLX LP (NYSE:MPLX) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced by taking the foreast future cash flows of the company and discounting them back to today’s value. I will be using the discounted cash flows (DCF) model. Don’t get put off by the jargon, the math behind it is actually quite straightforward. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this and its not November 2017 then I highly recommend you check out the latest calculation for MPLX by following the link below. Check out our latest analysis for MPLX

### The model

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. To begin with we have to get estimates of the next five years of cash flows. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount the sum of these cash flows to arrive at a present value estimate.

#### 5-year cash flow forecast

 2017 2018 2019 2020 2021 Levered FCF (USD, Millions) \$-602.00 \$571.00 \$2,387.00 \$2,542.00 \$2,622.00 Source Analyst x1 Analyst x1 Analyst x1 Analyst x1 Analyst x1 Present Value Discounted @ 11.1% \$-541.83 \$462.57 \$1,740.46 \$1,668.24 \$1,548.76

Present Value of 5-year Cash Flow (PVCF)= \$4,878

We now need to calculate the Terminal Value, which accounts for all the future cash flows after the five years. The Gordon Growth formula is used to calculate Terminal Value at an annual growth rate equal to the 10-year government bond rate of 2.5%. We discount this to today’s value at a cost of equity of 11.1%.

Terminal Value (TV) = FCF2021 × (1 + g) ÷ (r – g) = \$2,622 × (1 + 2.5%) ÷ (11.1% – 2.5%) = \$31,119

Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = \$31,119 / ( 1 + 11.1%)5 = \$18,381

The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is \$23,259. In the final step we divide the equity value by the number of shares outstanding. If the stock is an depositary receipt (represents a specified number of shares in a foreign corporation) or ADR then we use the equivalent number. This results in an intrinsic value of \$56.00, which, compared to the current share price of \$34.41, we see that MPLX is quite good value at a 38.55% discount to what it is available for right now. 