Despite Strong Long Return Icahn Enterprises Has Rough Quarter

Despite Strong Long Return Icahn Enterprises Has Rough Quarter
UBS Global Research

Carl Icahn is a household name in the world of hedge funds and activism investing.  Icahn has successfully targeted numerous firms with activism to help increase efficiency and returns for shareholders.  Over the years, Icahn has targeted numerous companies such as WCI Communities, Motorola, Lionsgate Films, Hain Celestial Group Inc., The Clorox Company, Dell and Dollar Tree, just to name a few.  During the first quarter 2015, Carl Icahn saw his fund gain 4.3%, thanks to great performance in Icahn’s holdings of Apple and Ebay.  While Icahn may have had a successful first quarter performance, his company, Icahn Enterprises LP, has been under attack.

Icahn Enterprises misses 1Q earnings estimates, downgraded

Yesterday, May 7th, Icahn Enterprises LP announced a first quarter net income of $1.27 earnings per share on revenue of $4.51 billion.  Analysts were looking for earnings per share of $1.33 on revenue of $4.67 billion.  While Icahn Enterprises reported results that were under expectations, the results are much better than they were a year ago: loss of $0.24 per share on revenue of $4.99 billion. Icahn Enterprises was also recently downgraded by Zacks Investment Research from a “buy” to a “hold”.  Despite the earnings miss and downgrade, Icahn said that he was “very pleased” with the results and believes the investment holding company is on track for bullish outlook.  Shares of Icahn Enterprises LP are down -1% year to date.

UBS lowers price target, cities concern with falling NAV

Analysts at UBS currently rate Icahn Enterprises LP a “neutral” with a twelve month price target of $90, compared to the stock’s current price of $91.55. The analysts say that Icahn Enterprises will likely continue to benefit from opportunities that arise in the energy sector and European equities.  However, UBS lowered its Net Asset Value (NAV) and earnings per share estimates.  For instance NAV in 4Q is estimating at arriving at $74 from $77.

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Additionally, full year 2015 earnings per share estimates were trimmed to $5.53 from $5.65.  Full year 2016 EPS also got slashed from $6.14 to $6.05.  UBS’s main issue with Icahn Enterprises is that the company has been seeing steady declines in its NAV since 2Q14.

In terms of investment results UBS notes:

The investment portfolio returned 4.3% in the quarter, with a 6% gain in the long book partially offset by a 1.7% loss in the short book. Overall, the net long exposure of the portfolio declined to 4% as of quarter-end, and given the firm’s cautious view, we do not expect IEP to meaningfully increase its net long exposure from here.

IEP continues to look for opportunities in the energy sector, both from the perspective of the investment segment and as a bolt-on to CVR. However, despite the fall in oil prices, management has not seen a meaningful decline in asset prices yet. Quantitative easing in Europe may also lead to some opportunities for IEP (primarily for the portfolio companies, given that the investment segment remains very U.S. centric), as both Federal Mogul and Viskase have relatively large European platforms.

Icahn Enterprises
UBS Global Research

Overall, Carl Icahn had a successful Q1 with his investment performance, but his investment company, Icahn Enterprises, has been lagging lately. Analysts are not very optimistic on Icahn Enterprises, hence the downgrades and forecast reductions.  The declining NAV is a concern as the fund continues to cut assets and trim positions.  Ultimately, Icahn will likely continue his outstanding performance thanks to his successful activism strategies.

Disclosure: None

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