Love him or hate him, Carl Icahn is one of America’s greatest businessmen.
For a few years now, investors have had the opportunity to invest in him directly through his public vehicle, Icahn Enterprises L.P. (NYSE:IEP).
Even better, because he is the majority shareholder of IEP stock, his interests are as aligned with investors more than just about any other company management could be.
Uncle Icahn announced earnings on Thursday. Here’s what they looked like.
IEP Stock Earnings
Icahn Enterprises delivered Q1 revenues of $4.5 billion, and $1.28 per depository unit (used instead of EPS for Limited Partnerships), or $162 million. That’s after IEP added back a loss on extinguishment of debt. The actual net income was $161 million. Adjusted EBITDA was $575 million.
By comparison, Q1 2014 revenues were $5 billion and adjusted income per depository share was 77 cents, for a total of $92 million. IEP posted a net loss of $29 million. Adjusted EBITDA was $359 million.
However, I don’t like making quarter-to-quarter or year-over-year comparisons on IEP stock because it’s a holding company, which engages in many transactions, makes purchases and dispositions from time to time. So the “business” isn’t really consistent. It’s not like we expect “growth” in the traditional sense.
It’s really more like a mutual fund, or a private equity fund. I am more interested in cash flow, the positions IEP has, and how it performs relative to its peers. IEP made a presentation in March that detailed these factors.
Icahn Enterprises detailed five different time ranges: three-, five- and seven-year periods ending Feb. 27, 2014, the period from Jan. 1, 2000 until Feb. 27, 2014 and the period from the end of the financial crisis to that same end date. In all five time periods, IEP outperformed Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), Leucadia National Corporation (NYSE:LUK), and Loews Corporation (NYSE:L).
For that longest period going back to 2000, IEP delivered a 20% annualized return vs. 9.6%, 8.9%, and 10.8% for those other companies, respectively.
What You Get When You Buy IEP
As for the holdings you get with IEP stock, they are concentrated and driven by Icahn’s activist strategy. They include: Apple Inc. (NASDAQ:AAPL), Chesapeake Energy Corporation (NYSE:CHK), Hertz Global Holdings Inc (NYSE:HTZ), Herbalife Ltd. (NYSE:HLF) and Transocean LTD (NYSE:RIG).
These are just a few. IEP holds positions in railcars, gaming, parts, metals, real estate, textiles and food packaging. Many of these holdings throw off significant cash flow. The vast majority of revenues are generated from IEP energy holdings (almost 50%) — even in a tough year for energy — and from automotive (36%).
The highest-margin business is actually the railcar industry, mostly because a lot of it comes from leasing. The EBITDA margins for railcar come in at almost 50%, whereas gaming provides 12%, food packaging delivers 20%, real estate has 45% EBITDA margins, energy comes in at 7%, and automotive at 9%.
That activist strategy has a lot of wisdom — Icahn is no dummy. He has a lot of experience, and if he thinks that taking over a company will allow him to operate it more efficiently, then he will. That often rubs management the wrong way, because big-time public company executives don’t like to admit they aren’t doing the best job they can. There’s a lot of ego involved.
So is IEP right for your portfolio? Like many other holding companies, IEP stock is difficult to value. As with Leucadia or Liberty Media Corporation (NASDAQ:LMCA), where you are betting on John Malone, you are simply betting that the market will reward you for sticking with Carl Icahn, as it has all these years.
As of this writing, Lawrence Meyers was long AAPL and BRK.B. Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He is the Manager of the forthcoming Liberty Portfolio. He can be reached at TheLibertyPortfolio@gmail.com.
