Intrinsic value of Icahn Enterprises - IEP

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$52.85

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$52.85

 
Intrinsic value

$578.77

 
Up/down potential

+995%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of IEP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 8.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.25
  57.10
  51.89
  47.20
  42.98
  39.18
  35.76
  32.69
  29.92
  27.43
  25.18
  23.17
  21.35
  19.71
  18.24
  16.92
  15.73
  14.65
  13.69
  12.82
  12.04
  11.33
  10.70
  10.13
  9.62
  9.16
  8.74
  8.37
  8.03
  7.73
  7.45
Revenue, $m
  16,096
  25,287
  38,408
  56,537
  80,837
  112,512
  152,751
  202,682
  263,323
  335,546
  420,052
  517,362
  627,816
  751,588
  888,701
  1,039,058
  1,202,470
  1,378,683
  1,567,408
  1,768,349
  1,981,221
  2,205,776
  2,441,810
  2,689,181
  2,947,816
  3,217,713
  3,498,949
  3,791,679
  4,096,136
  4,412,629
  4,741,546
Variable operating expenses, $m
 
  27,194
  41,247
  60,662
  86,686
  120,607
  163,701
  217,175
  282,118
  359,464
  449,965
  554,065
  672,355
  804,907
  951,747
  1,112,771
  1,287,776
  1,476,490
  1,678,604
  1,893,799
  2,121,774
  2,362,259
  2,615,038
  2,879,958
  3,156,941
  3,445,985
  3,747,173
  4,060,669
  4,386,725
  4,725,672
  5,077,922
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  17,659
  27,194
  41,247
  60,662
  86,686
  120,607
  163,701
  217,175
  282,118
  359,464
  449,965
  554,065
  672,355
  804,907
  951,747
  1,112,771
  1,287,776
  1,476,490
  1,678,604
  1,893,799
  2,121,774
  2,362,259
  2,615,038
  2,879,958
  3,156,941
  3,445,985
  3,747,173
  4,060,669
  4,386,725
  4,725,672
  5,077,922
Operating income, $m
  -1,563
  -1,908
  -2,838
  -4,124
  -5,848
  -8,095
  -10,950
  -14,492
  -18,794
  -23,918
  -29,913
  -36,703
  -44,539
  -53,319
  -63,047
  -73,713
  -85,306
  -97,807
  -111,196
  -125,451
  -140,552
  -156,483
  -173,228
  -190,777
  -209,125
  -228,272
  -248,224
  -268,991
  -290,589
  -313,042
  -336,376
EBITDA, $m
  -530
  -351
  -533
  -785
  -1,122
  -1,562
  -2,121
  -2,814
  -3,656
  -4,659
  -5,832
  -7,183
  -8,716
  -10,435
  -12,338
  -14,426
  -16,695
  -19,141
  -21,761
  -24,551
  -27,506
  -30,624
  -33,901
  -37,335
  -40,926
  -44,673
  -48,578
  -52,642
  -56,869
  -61,263
  -65,829
Interest expense (income), $m
  662
  623
  1,309
  2,571
  4,314
  6,652
  9,698
  13,569
  18,371
  24,204
  31,150
  39,278
  48,638
  59,262
  71,167
  84,355
  98,816
  114,534
  131,483
  149,635
  168,962
  189,437
  211,035
  233,738
  257,531
  282,407
  308,366
  335,417
  363,572
  392,856
  423,297
Earnings before tax, $m
  -2,184
  -2,530
  -4,147
  -6,695
  -10,163
  -14,747
  -20,648
  -28,061
  -37,166
  -48,122
  -61,063
  -75,981
  -93,177
  -112,581
  -134,213
  -158,068
  -184,123
  -212,341
  -242,678
  -275,086
  -309,514
  -345,920
  -384,263
  -424,514
  -466,656
  -510,679
  -556,590
  -604,407
  -654,162
  -705,898
  -759,674
Tax expense, $m
  36
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -1,128
  -2,530
  -4,147
  -6,695
  -10,163
  -14,747
  -20,648
  -28,061
  -37,166
  -48,122
  -61,063
  -75,981
  -93,177
  -112,581
  -134,213
  -158,068
  -184,123
  -212,341
  -242,678
  -275,086
  -309,514
  -345,920
  -384,263
  -424,514
  -466,656
  -510,679
  -556,590
  -604,407
  -654,162
  -705,898
  -759,674

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,637
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  33,335
  48,257
  73,298
  107,895
  154,270
  214,717
  291,510
  386,798
  502,526
  640,355
  801,626
  987,332
  1,198,123
  1,434,327
  1,695,993
  1,982,935
  2,294,790
  2,631,074
  2,991,237
  3,374,711
  3,780,957
  4,209,496
  4,659,943
  5,132,025
  5,625,603
  6,140,673
  6,677,384
  7,236,028
  7,817,053
  8,421,048
  9,048,751
Adjusted assets (=assets-cash), $m
  30,698
  48,257
  73,298
  107,895
  154,270
  214,717
  291,510
  386,798
  502,526
  640,355
  801,626
  987,332
  1,198,123
  1,434,327
  1,695,993
  1,982,935
  2,294,790
  2,631,074
  2,991,237
  3,374,711
  3,780,957
  4,209,496
  4,659,943
  5,132,025
  5,625,603
  6,140,673
  6,677,384
  7,236,028
  7,817,053
  8,421,048
  9,048,751
Revenue / Adjusted assets
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
  0.524
Average production assets, $m
  10,923
  17,170
  26,079
  38,389
  54,889
  76,395
  103,718
  137,621
  178,797
  227,836
  285,215
  351,289
  426,287
  510,328
  603,428
  705,520
  816,477
  936,126
  1,064,270
  1,200,709
  1,345,249
  1,497,722
  1,657,989
  1,825,954
  2,001,567
  2,184,827
  2,375,786
  2,574,550
  2,781,276
  2,996,175
  3,219,509
Working capital, $m
  0
  -4,147
  -6,299
  -9,272
  -13,257
  -18,452
  -25,051
  -33,240
  -43,185
  -55,030
  -68,889
  -84,847
  -102,962
  -123,260
  -145,747
  -170,406
  -197,205
  -226,104
  -257,055
  -290,009
  -324,920
  -361,747
  -400,457
  -441,026
  -483,442
  -527,705
  -573,828
  -621,835
  -671,766
  -723,671
  -777,613
Total debt, $m
  11,119
  23,370
  45,906
  77,044
  118,781
  173,183
  242,297
  328,057
  432,211
  556,258
  701,401
  868,537
  1,058,248
  1,270,833
  1,506,332
  1,764,580
  2,045,249
  2,347,905
  2,672,051
  3,017,178
  3,382,799
  3,768,484
  4,173,886
  4,598,761
  5,042,980
  5,506,544
  5,989,583
  6,492,364
  7,015,285
  7,558,881
  8,123,814
Total liabilities, $m
  31,181
  43,432
  65,968
  97,106
  138,843
  193,245
  262,359
  348,119
  452,273
  576,320
  721,463
  888,599
  1,078,310
  1,290,895
  1,526,394
  1,784,642
  2,065,311
  2,367,967
  2,692,113
  3,037,240
  3,402,861
  3,788,546
  4,193,948
  4,618,823
  5,063,042
  5,526,606
  6,009,645
  6,512,426
  7,035,347
  7,578,943
  8,143,876
Total equity, $m
  2,154
  4,826
  7,330
  10,790
  15,427
  21,472
  29,151
  38,680
  50,253
  64,036
  80,163
  98,733
  119,812
  143,433
  169,599
  198,294
  229,479
  263,107
  299,124
  337,471
  378,096
  420,950
  465,994
  513,203
  562,560
  614,067
  667,738
  723,603
  781,705
  842,105
  904,875
Total liabilities and equity, $m
  33,335
  48,258
  73,298
  107,896
  154,270
  214,717
  291,510
  386,799
  502,526
  640,356
  801,626
  987,332
  1,198,122
  1,434,328
  1,695,993
  1,982,936
  2,294,790
  2,631,074
  2,991,237
  3,374,711
  3,780,957
  4,209,496
  4,659,942
  5,132,026
  5,625,602
  6,140,673
  6,677,383
  7,236,029
  7,817,052
  8,421,048
  9,048,751
Debt-to-equity ratio
  5.162
  4.840
  6.260
  7.140
  7.700
  8.070
  8.310
  8.480
  8.600
  8.690
  8.750
  8.800
  8.830
  8.860
  8.880
  8.900
  8.910
  8.920
  8.930
  8.940
  8.950
  8.950
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  8.980
  8.980
Adjusted equity ratio
  -0.016
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1,128
  -2,530
  -4,147
  -6,695
  -10,163
  -14,747
  -20,648
  -28,061
  -37,166
  -48,122
  -61,063
  -75,981
  -93,177
  -112,581
  -134,213
  -158,068
  -184,123
  -212,341
  -242,678
  -275,086
  -309,514
  -345,920
  -384,263
  -424,514
  -466,656
  -510,679
  -556,590
  -604,407
  -654,162
  -705,898
  -759,674
Depreciation, amort., depletion, $m
  1,033
  1,556
  2,305
  3,340
  4,726
  6,533
  8,829
  11,678
  15,139
  19,259
  24,081
  29,520
  35,822
  42,885
  50,708
  59,287
  68,612
  78,666
  89,434
  100,900
  113,046
  125,859
  139,327
  153,442
  168,199
  183,599
  199,646
  216,349
  233,721
  251,779
  270,547
Funds from operations, $m
  3,111
  -974
  -1,842
  -3,356
  -5,437
  -8,214
  -11,819
  -16,383
  -22,027
  -28,862
  -36,982
  -46,461
  -57,354
  -69,697
  -83,505
  -98,780
  -115,511
  -133,675
  -153,244
  -174,186
  -196,468
  -220,061
  -244,936
  -271,073
  -298,457
  -327,080
  -356,944
  -388,059
  -420,441
  -454,119
  -489,127
Change in working capital, $m
  1,558
  -1,507
  -2,152
  -2,973
  -3,985
  -5,195
  -6,599
  -8,189
  -9,945
  -11,845
  -13,859
  -15,959
  -18,115
  -20,298
  -22,487
  -24,659
  -26,800
  -28,899
  -30,951
  -32,954
  -34,911
  -36,827
  -38,710
  -40,569
  -42,416
  -44,263
  -46,123
  -48,008
  -49,931
  -51,905
  -53,942
Cash from operations, $m
  1,553
  813
  310
  -383
  -1,452
  -3,019
  -5,220
  -8,194
  -12,082
  -17,018
  -23,123
  -30,502
  -39,240
  -49,398
  -61,018
  -74,122
  -88,711
  -104,776
  -122,293
  -141,232
  -161,557
  -183,234
  -206,226
  -230,504
  -256,041
  -282,817
  -310,821
  -340,051
  -370,510
  -402,214
  -435,184
Maintenance CAPEX, $m
  0
  -918
  -1,443
  -2,192
  -3,226
  -4,612
  -6,420
  -8,716
  -11,565
  -15,025
  -19,146
  -23,968
  -29,520
  -35,822
  -42,885
  -50,708
  -59,287
  -68,612
  -78,666
  -89,434
  -100,900
  -113,046
  -125,859
  -139,327
  -153,442
  -168,199
  -183,599
  -199,646
  -216,349
  -233,721
  -251,779
New CAPEX, $m
  -826
  -6,247
  -8,909
  -12,310
  -16,500
  -21,507
  -27,322
  -33,903
  -41,175
  -49,039
  -57,380
  -66,073
  -74,998
  -84,041
  -93,100
  -102,093
  -110,957
  -119,648
  -128,144
  -136,439
  -144,541
  -152,472
  -160,267
  -167,965
  -175,613
  -183,260
  -190,959
  -198,764
  -206,726
  -214,899
  -223,334
Cash from investing activities, $m
  -1,854
  -7,165
  -10,352
  -14,502
  -19,726
  -26,119
  -33,742
  -42,619
  -52,740
  -64,064
  -76,526
  -90,041
  -104,518
  -119,863
  -135,985
  -152,801
  -170,244
  -188,260
  -206,810
  -225,873
  -245,441
  -265,518
  -286,126
  -307,292
  -329,055
  -351,459
  -374,558
  -398,410
  -423,075
  -448,620
  -475,113
Free cash flow, $m
  -301
  -6,352
  -10,042
  -14,884
  -21,177
  -29,139
  -38,962
  -50,813
  -64,822
  -81,082
  -99,649
  -120,544
  -143,758
  -169,261
  -197,003
  -226,923
  -258,956
  -293,036
  -329,103
  -367,105
  -406,998
  -448,752
  -492,353
  -537,796
  -585,095
  -634,276
  -685,380
  -738,460
  -793,585
  -850,834
  -910,298
Issuance/(repayment) of debt, $m
  -153
  12,251
  22,537
  31,138
  41,737
  54,403
  69,113
  85,760
  104,155
  124,046
  145,144
  167,135
  189,712
  212,584
  235,499
  258,248
  280,669
  302,656
  324,146
  345,127
  365,621
  385,685
  405,402
  424,875
  444,219
  463,564
  483,039
  502,780
  522,922
  543,596
  564,933
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  9,472
  24,009
  40,973
  60,325
  82,001
  105,921
  131,995
  160,130
  190,233
  222,219
  256,012
  291,544
  328,766
  367,637
  408,136
Cash from financing (excl. dividends), $m  
  190
  12,251
  22,537
  31,138
  41,737
  54,403
  69,113
  85,760
  104,155
  124,046
  145,144
  167,135
  189,712
  212,584
  235,499
  258,248
  290,141
  326,665
  365,119
  405,452
  447,622
  491,606
  537,397
  585,005
  634,452
  685,783
  739,051
  794,324
  851,688
  911,233
  973,069
Total cash flow (excl. dividends), $m
  -142
  5,899
  12,494
  16,254
  20,560
  25,264
  30,151
  34,947
  39,333
  42,965
  45,495
  46,592
  45,953
  43,323
  38,497
  31,325
  21,714
  9,620
  -4,957
  -21,978
  -41,377
  -63,067
  -86,950
  -112,922
  -140,875
  -170,712
  -202,341
  -235,680
  -270,663
  -307,238
  -345,365
Retained Cash Flow (-), $m
  1,833
  -5,309
  -2,504
  -3,460
  -4,637
  -6,045
  -7,679
  -9,529
  -11,573
  -13,783
  -16,127
  -18,571
  -21,079
  -23,620
  -26,167
  -28,694
  -31,185
  -33,628
  -36,016
  -38,347
  -40,625
  -42,854
  -45,045
  -47,208
  -49,358
  -51,507
  -53,671
  -55,864
  -58,102
  -60,400
  -62,770
Prev. year cash balance distribution, $m
 
  2,637
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  3,227
  9,990
  12,794
  15,922
  19,219
  22,472
  25,418
  27,760
  29,182
  29,368
  28,021
  24,874
  19,703
  12,330
  2,631
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  11.30
  11.87
  12.46
  13.08
  13.74
  14.42
  15.14
  15.90
  16.70
  17.53
  18.41
  19.33
  20.29
  21.31
  22.37
  23.49
  24.67
  25.90
  27.19
  28.55
  29.98
  31.48
  33.06
  34.71
  36.44
  38.27
  40.18
  42.19
  44.30
  46.51
PV of cash for distribution, $m
 
  2,899
  7,983
  8,996
  9,737
  10,099
  10,013
  9,473
  8,526
  7,272
  5,840
  4,369
  2,985
  1,784
  825
  127
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  98.8
  96.2
  92.4
  87.8
  82.6
  77.0
  71.2
  65.4
  59.7
  54.1
  48.8
  43.9
  39.2
  35.0
  31.1

Icahn Enterprises L.P., through its subsidiaries, operates in investment, automotive, energy, metals, railcar, gaming, mining, food packaging, real estate, and home fashion businesses in the United States, Germany, and Internationally. Its Investment segment operates various private investment funds. The company’s Automotive segment supplies a range of components, accessories, and systems to the automotive, small engine, heavy-duty, marine, railroad, agricultural, off-road, aerospace and energy, industrial, and transport markets; and distributes automotive parts. Its Energy segment refines and markets transportation fuels; and manufactures nitrogen fertilizer. The company’s Metals segment collects and processes industrial and obsolete scrap metal into reusable forms; and operates steel products business. Its Railcar segment manufactures and sells railcars; and provides railcar repair services, as well as leases railcars. The company’s Gaming segment owns and operates casino gaming properties, including 8 casino facilities with 8,100 slot machines, 280 table games, and 5,500 hotel rooms. Its Mining segment produces and sells iron ore products to the steel industry. The company’s Food Packaging segment produces and sells cellulosic, fibrous, and plastic casings for the processed meat and poultry industry. Its Real Estate segment is involved in the rental of real estate properties; construction and sale of single-family and multi-family homes, lots in subdivisions and planned communities, and raw land for residential development; and golf and club operations. The company’s Home Fashion segment sources, manufactures, distributes, markets, and sells home fashion consumer products, such as bed, bath, basic bedding, and other textile products. The company serves as the general partner of the company. Icahn Enterprises L.P. was founded in 1987 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  Icahn Enterprises (IEP)

Valuation Ratios
P/E Ratio -6.9
Price to Sales 0.5
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 5
Price to Free Cash Flow 10.7
Growth Rates
Sales Growth Rate 7.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -39.2%
Cap. Spend. - 3 Yr. Gr. Rate -6.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 516.2%
Total Debt to Equity 516.2%
Interest Coverage -2
Management Effectiveness
Return On Assets -1.3%
Ret/ On Assets - 3 Yr. Avg. -0.8%
Return On Total Capital -7.6%
Ret/ On T. Cap. - 3 Yr. Avg. -5.7%
Return On Equity -36.7%
Return On Equity - 3 Yr. Avg. -22.8%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 16.7%
Gross Margin - 3 Yr. Avg. 14.6%
EBITDA Margin -3%
EBITDA Margin - 3 Yr. Avg. -0.9%
Operating Margin -9.7%
Oper. Margin - 3 Yr. Avg. -6.5%
Pre-Tax Margin -13.6%
Pre-Tax Margin - 3 Yr. Avg. -10.2%
Net Profit Margin -7%
Net Profit Margin - 3 Yr. Avg. -5.7%
Effective Tax Rate -1.6%
Eff/ Tax Rate - 3 Yr. Avg. 3.8%
Payout Ratio -9.1%

IEP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IEP stock intrinsic value calculation we used $16096 million for the last fiscal year's total revenue generated by Icahn Enterprises. The default revenue input number comes from 2016 income statement of Icahn Enterprises. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our IEP stock valuation model: a) initial revenue growth rate of 57.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 11.3%, whose default value for IEP is calculated based on our internal credit rating of Icahn Enterprises, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Icahn Enterprises.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of IEP stock the variable cost ratio is equal to 107.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for IEP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.6% for Icahn Enterprises.

Corporate tax rate of 27% is the nominal tax rate for Icahn Enterprises. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the IEP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for IEP are equal to 67.9%.

Life of production assets of 11.9 years is the average useful life of capital assets used in Icahn Enterprises operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for IEP is equal to -16.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2154 million for Icahn Enterprises - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 157.104 million for Icahn Enterprises is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Icahn Enterprises at the current share price and the inputted number of shares is $8.3 billion.


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COMPANY NEWS

▶ Invest Like Warren Buffett, Not Carl Icahn   [Apr-09-17 08:24PM  Motley Fool]
▶ Here's How Carl Icahn's Portfolio Is Changing   [Mar-15-17 05:20PM  Motley Fool]
▶ Here's How Carl Icahn's Portfolio Is Changing   [05:20PM  at Motley Fool]
▶ Carl Icahn Doubles Down on Herbalife Bet   [11:55AM  24/7 Wall St.]
▶ AIG Chief Resigns, Carl Icahn Tweets Huzzah   [Mar-09-17 09:46AM  at Barrons.com]
▶ Watchdog group wants Icahn investigated for his role with Trump   [Mar-08-17 02:00PM  at bizjournals.com]
▶ [$$] Carl Icahn to Sell Trump Taj Mahal to Group Led by Hard Rock   [Mar-01-17 09:25PM  at The Wall Street Journal]
▶ 3 Stocks Billionaire Carl Icahn Is Buying   [Feb-23-17 11:59AM  at Motley Fool]
▶ Icahn Leaves Voltari Position But Adds to Hertz   [01:54PM  at Investopedia]
▶ Icahn Will Assume Ownership of Federal-Mogul   [03:57PM  at Investopedia]
▶ Carl Icahn's Investment Fund Plunged By 20% In 2016   [Jan-12-17 09:12PM  at Forbes]
▶ [$$] Carl Icahn's Role as Trump Adviser Presents Potential Business Conflicts   [Dec-28-16 11:23AM  at The Wall Street Journal]
▶ [$$] Carl Icahn Stands to Gain   [Dec-24-16 12:01AM  at Barrons.com]
▶ [$$] Where Carl Icahn the Adviser and Carl Icahn the Investor Meet   [Dec-23-16 12:11AM  at The Wall Street Journal]
▶ [$$] Carl Icahn to Sell American Railcar   [Dec-19-16 07:56PM  at The Wall Street Journal]
▶ Is AMERCO (UHAL) A Good Stock To Buy?   [Dec-09-16 04:52PM  at Insider Monkey]
Stock chart of IEP Financial statements of IEP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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