Intrinsic value of Icahn Enterprises - IEP

Previous Close

$50.20

  Intrinsic Value

$131.14

stock screener

  Rating & Target

str. buy

+161%

  Value-price divergence*

+2313%

Previous close

$50.20

 
Intrinsic value

$131.14

 
Up/down potential

+161%

 
Rating

str. buy

 
Value-price divergence*

+2313%

*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 7.3

 

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
  52.50
  47.75
  43.48
  39.63
  36.16
  33.05
  30.24
  27.72
  25.45
  23.40
  21.56
  19.91
  18.42
  17.07
  15.87
  14.78
  13.80
  12.92
  12.13
  11.42
  10.77
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
Revenue, $m
  16,096
  24,546
  36,267
  52,035
  72,654
  98,930
  131,624
  171,432
  218,952
  274,669
  338,948
  412,033
  494,052
  585,034
  684,921
  793,594
  910,886
  1,036,605
  1,170,552
  1,312,534
  1,462,380
  1,619,950
  1,785,142
  1,957,903
  2,138,223
  2,326,150
  2,521,779
  2,725,262
  2,936,800
  3,156,646
  3,385,102
Variable operating expenses, $m
 
  26,401
  38,954
  55,840
  77,922
  106,062
  141,076
  183,708
  234,598
  294,268
  363,107
  441,263
  529,101
  626,537
  733,511
  849,894
  975,506
  1,110,144
  1,253,593
  1,405,648
  1,566,125
  1,734,873
  1,911,785
  2,096,801
  2,289,914
  2,491,172
  2,700,680
  2,918,598
  3,145,143
  3,380,586
  3,625,249
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
  26,401
  38,954
  55,840
  77,922
  106,062
  141,076
  183,708
  234,598
  294,268
  363,107
  441,263
  529,101
  626,537
  733,511
  849,894
  975,506
  1,110,144
  1,253,593
  1,405,648
  1,566,125
  1,734,873
  1,911,785
  2,096,801
  2,289,914
  2,491,172
  2,700,680
  2,918,598
  3,145,143
  3,380,586
  3,625,249
Operating income, $m
  -1,563
  -1,855
  -2,686
  -3,805
  -5,268
  -7,132
  -9,451
  -12,275
  -15,647
  -19,599
  -24,159
  -29,231
  -35,049
  -41,504
  -48,590
  -56,299
  -64,620
  -73,539
  -83,042
  -93,114
  -103,745
  -114,923
  -126,642
  -138,898
  -151,691
  -165,023
  -178,901
  -193,336
  -208,343
  -223,940
  -240,147
EBITDA, $m
  -530
  -341
  -504
  -722
  -1,009
  -1,373
  -1,827
  -2,380
  -3,040
  -3,813
  -4,706
  -5,720
  -6,859
  -8,122
  -9,509
  -11,018
  -12,646
  -14,392
  -16,251
  -18,223
  -20,303
  -22,491
  -24,784
  -27,183
  -29,686
  -32,295
  -35,011
  -37,836
  -40,773
  -43,825
  -46,997
Interest expense (income), $m
  662
  623
  1,438
  2,661
  4,306
  6,458
  9,200
  12,611
  16,765
  21,724
  27,538
  34,245
  41,871
  50,430
  59,924
  70,347
  81,686
  93,926
  107,044
  121,021
  135,837
  151,473
  167,915
  185,152
  203,179
  221,995
  241,605
  262,019
  283,252
  305,325
  328,266
Earnings before tax, $m
  -2,184
  -2,478
  -4,124
  -6,466
  -9,574
  -13,590
  -18,651
  -24,887
  -32,412
  -41,323
  -51,697
  -63,476
  -76,920
  -91,933
  -108,513
  -126,646
  -146,307
  -167,465
  -190,086
  -214,135
  -239,581
  -266,396
  -294,557
  -324,050
  -354,870
  -387,018
  -420,506
  -455,355
  -491,595
  -529,265
  -568,413
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
  -2,478
  -4,124
  -6,466
  -9,574
  -13,590
  -18,651
  -24,887
  -32,412
  -41,323
  -51,697
  -63,476
  -76,920
  -91,933
  -108,513
  -126,646
  -146,307
  -167,465
  -190,086
  -214,135
  -239,581
  -266,396
  -294,557
  -324,050
  -354,870
  -387,018
  -420,506
  -455,355
  -491,595
  -529,265
  -568,413

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
  50,821
  75,088
  107,732
  150,423
  204,824
  272,514
  354,932
  453,316
  568,672
  701,756
  853,070
  1,022,882
  1,211,250
  1,418,057
  1,643,052
  1,885,893
  2,146,181
  2,423,503
  2,717,461
  3,027,702
  3,353,933
  3,695,947
  4,053,628
  4,426,963
  4,816,045
  5,221,075
  5,642,364
  6,080,331
  6,535,499
  7,008,493
Adjusted assets (=assets-cash), $m
  30,698
  50,821
  75,088
  107,732
  150,423
  204,824
  272,514
  354,932
  453,316
  568,672
  701,756
  853,070
  1,022,882
  1,211,250
  1,418,057
  1,643,052
  1,885,893
  2,146,181
  2,423,503
  2,717,461
  3,027,702
  3,353,933
  3,695,947
  4,053,628
  4,426,963
  4,816,045
  5,221,075
  5,642,364
  6,080,331
  6,535,499
  7,008,493
Revenue / Adjusted assets
  0.524
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
Average production assets, $m
  10,923
  16,667
  24,626
  35,331
  49,332
  67,173
  89,373
  116,402
  148,668
  186,500
  230,146
  279,770
  335,461
  397,238
  465,062
  538,850
  618,492
  703,855
  794,805
  891,210
  992,956
  1,099,946
  1,212,112
  1,329,416
  1,451,854
  1,579,456
  1,712,288
  1,850,453
  1,994,087
  2,143,363
  2,298,484
Working capital, $m
  0
  -2,455
  -3,627
  -5,203
  -7,265
  -9,893
  -13,162
  -17,143
  -21,895
  -27,467
  -33,895
  -41,203
  -49,405
  -58,503
  -68,492
  -79,359
  -91,089
  -103,661
  -117,055
  -131,253
  -146,238
  -161,995
  -178,514
  -195,790
  -213,822
  -232,615
  -252,178
  -272,526
  -293,680
  -315,665
  -338,510
Total debt, $m
  11,119
  25,677
  47,517
  76,897
  115,319
  164,279
  225,201
  299,377
  387,922
  491,743
  611,518
  747,701
  900,532
  1,070,063
  1,256,189
  1,458,685
  1,677,241
  1,911,500
  2,161,090
  2,425,653
  2,704,869
  2,998,478
  3,306,290
  3,628,204
  3,964,205
  4,314,379
  4,678,906
  5,058,066
  5,452,236
  5,861,887
  6,287,582
Total liabilities, $m
  31,181
  45,739
  67,579
  96,959
  135,381
  184,341
  245,263
  319,439
  407,984
  511,805
  631,580
  767,763
  920,594
  1,090,125
  1,276,251
  1,478,747
  1,697,303
  1,931,562
  2,181,152
  2,445,715
  2,724,931
  3,018,540
  3,326,352
  3,648,266
  3,984,267
  4,334,441
  4,698,968
  5,078,128
  5,472,298
  5,881,949
  6,307,644
Total equity, $m
  2,154
  5,082
  7,509
  10,773
  15,042
  20,482
  27,251
  35,493
  45,332
  56,867
  70,176
  85,307
  102,288
  121,125
  141,806
  164,305
  188,589
  214,618
  242,350
  271,746
  302,770
  335,393
  369,595
  405,363
  442,696
  481,605
  522,108
  564,236
  608,033
  653,550
  700,849
Total liabilities and equity, $m
  33,335
  50,821
  75,088
  107,732
  150,423
  204,823
  272,514
  354,932
  453,316
  568,672
  701,756
  853,070
  1,022,882
  1,211,250
  1,418,057
  1,643,052
  1,885,892
  2,146,180
  2,423,502
  2,717,461
  3,027,701
  3,353,933
  3,695,947
  4,053,629
  4,426,963
  4,816,046
  5,221,076
  5,642,364
  6,080,331
  6,535,499
  7,008,493
Debt-to-equity ratio
  5.162
  5.050
  6.330
  7.140
  7.670
  8.020
  8.260
  8.430
  8.560
  8.650
  8.710
  8.760
  8.800
  8.830
  8.860
  8.880
  8.890
  8.910
  8.920
  8.930
  8.930
  8.940
  8.950
  8.950
  8.950
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
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
  -2,478
  -4,124
  -6,466
  -9,574
  -13,590
  -18,651
  -24,887
  -32,412
  -41,323
  -51,697
  -63,476
  -76,920
  -91,933
  -108,513
  -126,646
  -146,307
  -167,465
  -190,086
  -214,135
  -239,581
  -266,396
  -294,557
  -324,050
  -354,870
  -387,018
  -420,506
  -455,355
  -491,595
  -529,265
  -568,413
Depreciation, amort., depletion, $m
  1,033
  1,514
  2,183
  3,083
  4,259
  5,758
  7,624
  9,895
  12,607
  15,786
  19,454
  23,510
  28,190
  33,381
  39,081
  45,282
  51,974
  59,147
  66,790
  74,892
  83,442
  92,432
  101,858
  111,716
  122,005
  132,727
  143,890
  155,500
  167,570
  180,114
  193,150
Funds from operations, $m
  3,111
  -963
  -1,941
  -3,383
  -5,315
  -7,831
  -11,027
  -14,991
  -19,805
  -25,537
  -32,243
  -39,965
  -48,730
  -58,552
  -69,433
  -81,364
  -94,333
  -108,317
  -123,295
  -139,244
  -156,140
  -173,963
  -192,699
  -212,335
  -232,865
  -254,291
  -276,616
  -299,855
  -324,025
  -349,151
  -375,263
Change in working capital, $m
  1,558
  -845
  -1,172
  -1,577
  -2,062
  -2,628
  -3,269
  -3,981
  -4,752
  -5,572
  -6,428
  -7,308
  -8,202
  -9,098
  -9,989
  -10,867
  -11,729
  -12,572
  -13,395
  -14,198
  -14,985
  -15,757
  -16,519
  -17,276
  -18,032
  -18,793
  -19,563
  -20,348
  -21,154
  -21,985
  -22,846
Cash from operations, $m
  1,553
  -118
  -769
  -1,807
  -3,253
  -5,204
  -7,758
  -11,011
  -15,053
  -19,965
  -25,815
  -32,657
  -40,528
  -49,454
  -59,444
  -70,497
  -82,603
  -95,745
  -109,901
  -125,045
  -141,155
  -158,206
  -176,180
  -195,059
  -214,833
  -235,498
  -257,053
  -279,507
  -302,871
  -327,166
  -352,417
Maintenance CAPEX, $m
  0
  -918
  -1,401
  -2,069
  -2,969
  -4,146
  -5,645
  -7,510
  -9,782
  -12,493
  -15,672
  -19,340
  -23,510
  -28,190
  -33,381
  -39,081
  -45,282
  -51,974
  -59,147
  -66,790
  -74,892
  -83,442
  -92,432
  -101,858
  -111,716
  -122,005
  -132,727
  -143,890
  -155,500
  -167,570
  -180,114
New CAPEX, $m
  -826
  -5,745
  -7,958
  -10,706
  -14,001
  -17,841
  -22,200
  -27,029
  -32,266
  -37,832
  -43,646
  -49,625
  -55,691
  -61,777
  -67,824
  -73,789
  -79,641
  -85,363
  -90,950
  -96,406
  -101,745
  -106,990
  -112,166
  -117,304
  -122,438
  -127,602
  -132,832
  -138,165
  -143,634
  -149,275
  -155,122
Cash from investing activities, $m
  -1,854
  -6,663
  -9,359
  -12,775
  -16,970
  -21,987
  -27,845
  -34,539
  -42,048
  -50,325
  -59,318
  -68,965
  -79,201
  -89,967
  -101,205
  -112,870
  -124,923
  -137,337
  -150,097
  -163,196
  -176,637
  -190,432
  -204,598
  -219,162
  -234,154
  -249,607
  -265,559
  -282,055
  -299,134
  -316,845
  -335,236
Free cash flow, $m
  -301
  -6,781
  -10,128
  -14,582
  -20,223
  -27,190
  -35,602
  -45,550
  -57,100
  -70,290
  -85,133
  -101,621
  -119,730
  -139,420
  -160,649
  -183,367
  -207,526
  -233,083
  -259,998
  -288,242
  -317,792
  -348,638
  -380,778
  -414,221
  -448,987
  -485,105
  -522,613
  -561,561
  -602,006
  -644,012
  -687,653
Issuance/(repayment) of debt, $m
  -153
  14,558
  21,840
  29,380
  38,422
  48,960
  60,922
  74,176
  88,546
  103,821
  119,775
  136,183
  152,831
  169,531
  186,126
  202,496
  218,556
  234,259
  249,590
  264,563
  279,216
  293,608
  307,813
  321,913
  336,001
  350,173
  364,527
  379,160
  394,170
  409,651
  425,695
Issuance/(repurchase) of shares, $m
  0
  5,406
  6,551
  9,730
  13,843
  19,030
  25,420
  33,128
  42,250
  52,859
  65,005
  78,607
  93,902
  110,770
  129,194
  149,146
  170,591
  193,494
  217,818
  243,531
  270,605
  299,019
  328,758
  359,819
  392,203
  425,926
  461,009
  497,484
  535,392
  574,782
  615,712
Cash from financing (excl. dividends), $m  
  190
  19,964
  28,391
  39,110
  52,265
  67,990
  86,342
  107,304
  130,796
  156,680
  184,780
  214,790
  246,733
  280,301
  315,320
  351,642
  389,147
  427,753
  467,408
  508,094
  549,821
  592,627
  636,571
  681,732
  728,204
  776,099
  825,536
  876,644
  929,562
  984,433
  1,041,407
Total cash flow (excl. dividends), $m
  -142
  13,183
  18,263
  24,528
  32,043
  40,800
  50,740
  61,754
  73,695
  86,389
  99,647
  113,168
  127,003
  140,881
  154,672
  168,275
  181,621
  194,670
  207,410
  219,852
  232,029
  243,989
  255,793
  267,511
  279,218
  290,995
  302,923
  315,083
  327,556
  340,421
  353,754
Retained Cash Flow (-), $m
  1,833
  -5,406
  -6,551
  -9,730
  -13,843
  -19,030
  -25,420
  -33,128
  -42,250
  -52,859
  -65,005
  -78,607
  -93,902
  -110,770
  -129,194
  -149,146
  -170,591
  -193,494
  -217,818
  -243,531
  -270,605
  -299,019
  -328,758
  -359,819
  -392,203
  -425,926
  -461,009
  -497,484
  -535,392
  -574,782
  -615,712
Prev. year cash balance distribution, $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 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
 
  7,777
  11,712
  14,798
  18,199
  21,770
  25,320
  28,626
  31,445
  33,530
  34,642
  34,561
  33,101
  30,111
  25,477
  19,129
  11,030
  1,176
  -10,408
  -23,679
  -38,576
  -55,030
  -72,965
  -92,308
  -112,985
  -134,931
  -158,086
  -182,401
  -207,836
  -234,361
  -261,959
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
 
  6,987
  9,359
  10,405
  11,130
  11,439
  11,282
  10,668
  9,658
  8,355
  6,888
  5,388
  3,972
  2,726
  1,705
  926
  377
  28
  -165
  -245
  -254
  -223
  -177
  -130
  -89
  -57
  -35
  -20
  -11
  -6
  -3
Current shareholders' claim on cash, %
  100
  57.6
  41.8
  30.3
  22.0
  16.0
  11.7
  8.7
  6.4
  4.8
  3.6
  2.7
  2.0
  1.5
  1.2
  0.9
  0.7
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0

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 -6.5
Price to Sales 0.5
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 4.7
Price to Free Cash Flow 10.1
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 52.5% 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 -10%. 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 146.152 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 $7.3 billion.

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COMPANY NEWS

▶ 3 Stocks Carl Icahn Is Buying and Selling   [08:15AM  Motley Fool]
▶ Icahn Enterprises posts 2Q profit   [12:01AM  Associated Press]
▶ Icahn Enterprises L.P. Announces Quarterly Distribution   [Aug-03-17 04:01PM  GlobeNewswire]
▶ Icahn may buy thousands of auto-repair shops   [Jun-05-17 04:47PM  CNBC Videos]
▶ [$$] Carl Icahn Ups His Bet by Buying Precision Auto Care   [Jun-02-17 10:53PM  The Wall Street Journal]
▶ [$$] Carl Icahn Ups His Bet by Buying Precision Auto Care   [08:04PM  The Wall Street Journal]
▶ Icahn Guides Trumps Policy and Scores $60 Million   [May-24-17 06:00AM  Bloomberg]
▶ [$$] Carl Icahns Charity Supports EducationIt Also Lent Him $119 Million   [May-19-17 10:56PM  The Wall Street Journal]
▶ Stocks Billionaire Carl Icahn Is Buying Now   [May-18-17 11:40AM  Motley Fool]
▶ Here's What Carl Icahn Bought and Sold in the First Quarter   [May-16-17 11:44AM  TheStreet.com]
▶ Heres what Hard Rock-led group paid Carl Icahn for Taj Mahal casino   [03:30PM  American City Business Journals]
▶ Icahn Enterprises reports 1Q loss   [08:23AM  Associated Press]
▶ Icahn Enterprises L.P. Announces Quarterly Distribution   [May-04-17 04:01PM  GlobeNewswire]
▶ Invest Like Warren Buffett, Not Carl Icahn   [Apr-09-17 08:24PM  Motley Fool]
▶ Here's How Carl Icahn's Portfolio Is Changing   [Mar-15-17 05:20PM  Motley Fool]
▶ Here's How Carl Icahn's Portfolio Is Changing   [05:20PM  at Motley Fool]
▶ Carl Icahn Doubles Down on Herbalife Bet   [11:55AM  24/7 Wall St.]
▶ AIG Chief Resigns, Carl Icahn Tweets Huzzah   [Mar-09-17 09:46AM  at Barrons.com]
▶ Watchdog group wants Icahn investigated for his role with Trump   [Mar-08-17 02:00PM  at bizjournals.com]
▶ [$$] 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]
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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