| Billionaire activist investor Carl Icahn attends a charity event in New York on May 19, 2015 (Photo credit: Victor J. Blue/Bloomberg). |
UBS is bullish on Carl Icahn. Well, sort of.
The investment bank significantly boosted its price target on Icahn Enterprises on Friday, from $30 to $40. The major reason: The master limited partnership reported a 34 percent quarter-over-quarter increase in its net asset value, largely due to the near doubling of the shares of CVR Energy, one of its major holdings. Maintaining the 1.4-times multiple UBS places on the NAV gets the investment bank to its $40 valuation for the stock. Otherwise, the bank is skeptical of Icahn Enterprises’ prospects.
It retained its sell recommendation for shares of the octogenarian’s publicly-traded company, which has major investments in a number of companies in a wide variety of industries as well as Icahn’s internal hedge fund. The reason: Icahn himself is very bearish on the stock market these days. And given the stock market’s continued rise, UBS asserts in a note to clients: “We remain skeptical of a near-term turnaround in performance.”
Icahn Enterprises has sizable stakes in a number of companies, including Federal-Mogul, a supplier of powertrain components and other vehicle products; CVR Energy, a holding company for CVR Refining, and CVR Partners; and American Railcar Industries, a maker of tanker railcars.
On March 1, Icahn Enterprises announced it is selling the former Trump Taj Mahal Casino Resort in Atlantic City to a group of investors led by Hard Rock International. IEP had acquired the property in February 2016 when Trump Entertainment Resorts emerged from bankruptcy. At year-end, the investment had the second-smallest net asset value of all subsidiaries on Icahn Enterprises’ balance sheet.
Altogether, the company — a master limited partnership — reported a loss of $1.42 per unit in the fourth quarter and an $8.07 per unit loss for the year. The big swing factor was Icahn’s internal hedge fund.
It posted a 20.3 percent loss in 2016, its third-straight annual loss. It reported an 18 percent loss in 2015 and a 7.4 percent loss in 2014. In the fourth quarter of 2016 alone, Icahn’s hedge fund lost 8.7 percent.
Icahn’s big problem is he is heavily negative on the market. He was 138 percent net short at the end of the third quarter and was 128 percent net short at the end of the fourth quarter. This bearish exposure cost him in a huge way.
In 2016 the internal hedge fund posted an impressive 16 percent gain in its long book. However, it lost 34.1 percent in its short book, according to its annual report. In the fourth quarter the hedge fund lost more than 10 percent on its shorts and made just 1.3 percent on its longs. By contrast, in 2015 virtually all of its 18 percent loss stemmed from a decline in the long book, primarily in a few of its largest core holdings, including in the energy sector, according to the company.
With bulls leading the way on Wall Street these days, Icahn’s positioning does not bode well for the fund, partnership, and stock, UBS warns.
On March 1, however, Icahn signaled that he is bullish at least on biotech stocks when he announced the hire of Dr. Richard C. Mulligan as a portfolio manager focused on biotechnology investments. He is currently the Mallinckrodt Professor of Genetics, Emeritus, at Harvard Medical School, and visiting scientist at the Koch Institute for Integrative Cancer Research at MIT. In the past he has served as a consultant to Dupont, the Genetics Institute, and Amgen. From 2013 through 2016 Mulligan was a founding partner of Sarissa Capital Management, headed by Alex Denner, who earlier worked for Icahn.
UBS, however, tells clients it remains concerned that “weak investment fund returns, a limited float, and marginal performance in the non-investment subsidiaries are not reflected in the current market valuation, which is at a significant premium to NAV.”
On Friday, the stock rose more than 1 percent, to around $54.40. This is way higher than the bank’s price target.
It is also down more than 16 percent from the stock’s recent high nearly one year ago and less than half the price it traded at in August 2014.
