Chain of Thought for DCF Valuation of MARA Stock
The Discounted Cash Flow (DCF) method estimates a stock's intrinsic value by projecting future free cash flows (FCF) to equity, discounting them to present value using a discount rate, adding a terminal value for perpetuity, and dividing by shares outstanding. This is particularly relevant for MARA (Marathon Digital Holdings, Inc.), a high-growth Bitcoin mining and AI infrastructure company, but it involves volatility due to crypto exposure and capex intensity. I'll build a two-stage model: a 5-year high-growth period followed by stable terminal growth. All inputs are sourced from recent data as of October 2025.
Gather Key Inputs:
Base FCF: Use the trailing twelve months (TTM) levered FCF of $201 million as the starting point for 2025, reflecting recent operational improvements despite historical negatives (e.g., full-year 2024 FCF was -$924 million due to expansion capex).
Growth Rates: Apply 30% annual growth for the 5-year explicit forecast period, aligned with analyst revenue CAGR estimates of ~30% over the next 3 years and continued momentum from Bitcoin halving cycles, hash rate expansion, and AI diversification. Revenue is projected at $988 million for 2025 (50% YoY growth) and $1.27 billion for 2026 (28% YoY), supporting FCF scaling.
Terminal Growth Rate: 3%, a conservative long-term rate slightly above inflation but below U.S. GDP growth, suitable for a maturing tech/mining firm.
Discount Rate (WACC/Cost of Equity): 8%, an average of recent estimates (ranging 7.1%–14.8%) accounting for MARA's high beta (~3–4) but offset by improving leverage and AI upside.
Shares Outstanding: 370.46 million (diluted).
Current Stock Price: ~$18.65 (as of October 10, 2025), for comparison.
Project Explicit FCF (Years 1–5, 2025–2029):
Year 1 (2025): $201 million (TTM base).
Year 2 (2026): $201 × 1.30 = $261.3 million.
Year 3 (2027): $261.3 × 1.30 = $339.69 million.
Year 4 (2028): $339.69 × 1.30 = $441.60 million.
Year 5 (2029): $441.60 × 1.30 = $574.08 million.
Calculate Terminal Value (at End of Year 5):
Terminal FCF = Year 5 FCF × (1 + terminal growth) = $574.08 × 1.03 = $591.30 million.
Terminal Value = Terminal FCF / (Discount Rate – Terminal Growth) = $591.30 / (0.08 – 0.03) = $11,826 million.
Discount to Present Value:
Present Value of Explicit FCFs = S [FCF_t / (1 + r)^t] for t=1 to 5 = $1,395 million.
Present Value of Terminal Value = $11,826 / (1 + 0.08)^5 = $8,049 million.
Total Enterprise Value ˜ $1,395 + $8,049 = $9,444 million (equity value, as using levered FCF).
Derive Per-Share Value:
Intrinsic Value per Share = Total Equity Value / Shares Outstanding = $9,444 / 370.46 ˜ $25.49.
This DCF suggests MARA is undervalued by ~37% relative to its current price of $18.65, driven by growth potential in mining efficiency and AI data centers. Sensitivity: If growth drops to 20%, value falls to ~$18; if discount rate rises to 10%, value ~$20. Recent analyst targets average $23.32, aligning closely. Negative EPS growth forecasts (-50% for 2025) highlight risks from crypto volatility, but FCF focus captures capex-adjusted reality. |
