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How Should We Value Icahn Enterprises?

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Net asset value to indicate Icahn’s value of assets

Net asset value is usually used in mutual and unit trust funds, and it helps us determine the fund’s value. That would generally be the value of assets, less the value of its liabilities. It is also referred to as net book value or book value.

To derive the per-share value of Icahn Enterprises (IEP), we will divide the net asset value by the total outstanding units in order to calculate the net asset value per share.

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Icahn’s major investment

In 4Q15, Icahn Enterprises’ (IEP) market value of subsidiaries was $7.8 billion. The value of its unlisted companies was $3.2 billion. The ratio of the value of listed to unlisted companies stands at 2.5x.

Icahn Enterprises’ major investments are in CVR Energy (CVI) and Federal-Mogul (FDML), an auto parts company. Like all other refining stocks, CVI’s share price corrected sharply. CVI’s stock stands at $25, down 37% from $40 on a yearly basis from April 26, 2015, to April 26, 2016. IEP has made a proposal to buy out the minority holders in Federal-Mogul.

Is Icahn trading at a premium or discount to its net asset value?

On April 11, 2016, Icahn Enterprises (IEP) was trading at $60.80 per share. The company’s asset value at the end of 4Q15 was ~$6.3 billion. There were 129 million units outstanding in 4Q15. Thus, the net asset value per share at the end of fiscal 2015 stands at $49 per unit. IEP’s units have generally traded at a premium to its net asset value. Investors pay a premium, as they can invest along with the company’s founder, Carl Icahn.

Berkshire (BRK-B), Leucadia (LUK), and Loews Corporation (L) are some of IEP’s peers that have a wide range of holdings. However, IEP can’t be strictly compared to any other company due to its varied portfolio holdings in diverse sectors.

From April 2015–April 2016, IEP fell by ~33% in comparison to the SPDR S&P 500 ETF (SPY), which decreased by 1% during the same period. On a year-to-date basis, Leucadia and Loews fell by 26% and 7%, respectively. However, BRK-B gained 3.4% during the same period.

What does the analyst community have to say about Icahn Enterprises? Let’s find out in the final part of this series.

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