Icahn Enterprises LP (IEP): Does It Need an Activist?

Carl Icahn is the first of the activist investors — formerly known as “corporate raiders.” Long before Ackman and Einhorn, Icahn was a robber baron of the corporate world circa 1985. At 77 years old, the investor hasn’t pumped the brakes one bit, recently taking high-profile positions in companies such as Netflix, Inc. (NASDAQ:NFLX) and Herbalife Ltd. (NYSE:HLF). Though his reputation ranges from exalted to despised, his recent picks have proved profitable plays for investors who followed suit. Recently, one thing is a mystery: his own public company. Despite Icahn’s investing successes, Icahn Enterprises LP (NASDAQ:IEP) has been a poor performer as of late. Let’s take a closer look to see whether the market’s abandonment of the stock is warranted.

Recent performance
Icahn Enterprises LP (NASDAQ:IEP) is a near $6 billion holding company owned almost entirely by Carl Icahn (no surprise there). Since 2010, revenue has nearly doubled to $15.7 billion, while the bottom line in the most recent year was just shy of $380 million. The company has nearly $4.5 billion in cash and equivalents, as well as an easily manageable debt load. This year the company tripled its dividend to $4 per share — a 7.3% yield.

IEP subsidiaries include everybody’s favorite orange juice, Tropicana, and American Railcar Industries, Inc. (NASDAQ:ARII). Icahn’s recent bid for Dell Inc. (NASDAQ:DELL) is backed by IEP, as well as the company’s position in aforementioned Herbalife and Netflix. Objectively, the conglomerate owns a solid portfolio of companies and maintains minority positions in public entities that, with the exception of Herbalife, have performed well.

With many fundamental indicators suggesting that IEP is a stable, cash-generating business and recent wins in equity markets, why has the stock tumbled from its mid-February high of nearly $90 per share to today’s $55?

What happened?
For context, let’s look at some of Icahn’s stock holdings. Netflix earned $0.13 per share last quarter versus a market estimate of a $0.12 loss. Icahn owns 4.8 million shares, or nearly 9% of the company. In just three months, the value of those shares has gone from $441 million to more than $848 million — nearly 15% of Icahn Enterprises LP (NASDAQ:IEP)’ current market cap. American Railcar Industries’ stock has risen 53% in the last six months, boosting Icahn’s stake by millions.

One possible culprit was the company’s follow-on offering in early March, which came out priced at $63 per share. Investors may also be nervous regarding the company’s large position in Dell and Herbalife — two stocks that strongly polarize sentiment.