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# An Intrinsic Value Calculation For MRC Global Inc (NYSE:MRC) Shows It’s 43.01% Undervalued

Does the share price for MRC Global Inc (NYSE:MRC) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. 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 after March 2018 then I highly recommend you check out the latest calculation for MRC Global here.

### Is MRC fairly valued?

I use what is known as the 2-stage 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, I took the analyst consensus forecast of MRC’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 8.49%. This resulted in a present value of 5-year cash flow of US\$462.30M. Want to understand how I arrived at this number? Read our detailed analysis here.

Above is a visual representation of how MRC’s top and bottom lines are expected to move in the future, which should give you an idea of MRC’s outlook. Next, I determine the terminal value, which accounts for all the future cash flows after the five years. It’s appropriate to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. Discounting the terminal value back five years gives us a present value of US\$2.36B.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US\$2.82B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of \$30.76, which, compared to the current share price of \$17.53, we find that MRC Global is quite undervalued at a 43.01% discount to what it is available for right now.

### Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For MRC, I’ve compiled three relevant aspects you should further research:

1. Financial Health: Does MRC have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Future Earnings: How does MRC’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
3. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of MRC? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.