Intrinsic value of Icahn Enterprises - IEP

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$50.26

  Intrinsic Value

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  Value-price divergence*

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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 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
  54.80
  49.82
  45.34
  41.30
  37.67
  34.41
  31.47
  28.82
  26.44
  24.29
  22.36
  20.63
  19.06
  17.66
  16.39
  15.25
  14.23
  13.31
  12.47
  11.73
  11.05
  10.45
  9.90
  9.41
  8.97
  8.58
  8.22
  7.90
  7.61
  7.35
Revenue, $m
  16,096
  23,232
  34,807
  50,587
  71,482
  98,412
  132,272
  173,893
  224,007
  283,229
  352,035
  430,765
  519,622
  618,688
  727,939
  847,267
  976,504
  1,115,441
  1,263,854
  1,421,516
  1,588,220
  1,763,790
  1,948,090
  2,141,032
  2,342,583
  2,552,768
  2,771,672
  2,999,437
  3,236,268
  3,482,428
  3,738,234
Variable operating expenses, $m
 
  18,039
  26,951
  39,102
  55,190
  75,926
  101,997
  134,044
  172,631
  218,230
  271,210
  331,680
  400,098
  476,376
  560,497
  652,378
  751,887
  858,866
  973,140
  1,094,537
  1,222,896
  1,358,081
  1,499,988
  1,648,549
  1,803,739
  1,965,577
  2,134,128
  2,309,503
  2,491,858
  2,681,395
  2,878,361
Fixed operating expenses, $m
 
  4,700
  4,817
  4,938
  5,061
  5,188
  5,317
  5,450
  5,586
  5,726
  5,869
  6,016
  6,166
  6,320
  6,478
  6,640
  6,806
  6,977
  7,151
  7,330
  7,513
  7,701
  7,893
  8,091
  8,293
  8,500
  8,713
  8,931
  9,154
  9,383
  9,617
Total operating expenses, $m
  17,659
  22,739
  31,768
  44,040
  60,251
  81,114
  107,314
  139,494
  178,217
  223,956
  277,079
  337,696
  406,264
  482,696
  566,975
  659,018
  758,693
  865,843
  980,291
  1,101,867
  1,230,409
  1,365,782
  1,507,881
  1,656,640
  1,812,032
  1,974,077
  2,142,841
  2,318,434
  2,501,012
  2,690,778
  2,887,978
Operating income, $m
  -1,563
  494
  3,039
  6,548
  11,231
  17,299
  24,958
  34,399
  45,790
  59,272
  74,956
  93,069
  113,358
  135,991
  160,963
  188,249
  217,810
  249,599
  283,562
  319,649
  357,811
  398,009
  440,209
  484,392
  530,551
  578,691
  628,831
  681,004
  735,257
  791,650
  850,256
EBITDA, $m
  -530
  1,788
  4,902
  9,188
  14,899
  22,292
  31,617
  43,106
  56,963
  73,360
  92,430
  114,267
  138,928
  166,436
  196,784
  229,942
  265,863
  304,488
  345,755
  389,600
  435,966
  484,802
  536,072
  589,749
  645,826
  704,309
  765,221
  828,602
  894,509
  963,015
  1,034,210
Interest expense (income), $m
  662
  630
  1,312
  2,459
  4,023
  6,094
  8,763
  12,120
  16,245
  21,212
  27,082
  33,902
  41,706
  50,513
  60,333
  71,161
  82,989
  95,799
  109,570
  124,281
  139,908
  156,432
  173,834
  192,102
  211,226
  231,203
  252,037
  273,734
  296,310
  319,784
  344,183
Earnings before tax, $m
  -2,184
  -136
  1,727
  4,089
  7,208
  11,205
  16,194
  22,279
  29,545
  38,060
  47,874
  59,167
  71,652
  85,478
  100,630
  117,088
  134,821
  153,800
  173,992
  195,368
  217,903
  241,577
  266,375
  292,291
  319,325
  347,488
  376,794
  407,270
  438,947
  471,865
  506,073
Tax expense, $m
  36
  0
  466
  1,104
  1,946
  3,025
  4,373
  6,015
  7,977
  10,276
  12,926
  15,975
  19,346
  23,079
  27,170
  31,614
  36,402
  41,526
  46,978
  52,749
  58,834
  65,226
  71,921
  78,918
  86,218
  93,822
  101,734
  109,963
  118,516
  127,404
  136,640
Net income, $m
  -1,128
  -136
  1,261
  2,985
  5,262
  8,180
  11,822
  16,264
  21,568
  27,784
  34,948
  43,192
  52,306
  62,399
  73,460
  85,474
  98,419
  112,274
  127,014
  142,619
  159,070
  176,351
  194,454
  213,372
  233,108
  253,666
  275,060
  297,307
  320,431
  344,462
  369,433

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
  51,173
  76,667
  111,426
  157,450
  216,767
  291,349
  383,024
  493,408
  623,852
  775,408
  948,821
  1,144,542
  1,362,749
  1,603,389
  1,866,227
  2,150,890
  2,456,920
  2,783,818
  3,131,092
  3,498,283
  3,885,001
  4,290,947
  4,715,929
  5,159,875
  5,622,838
  6,105,003
  6,606,689
  7,128,344
  7,670,545
  8,233,996
Adjusted assets (=assets-cash), $m
  30,698
  51,173
  76,667
  111,426
  157,450
  216,767
  291,349
  383,024
  493,408
  623,852
  775,408
  948,821
  1,144,542
  1,362,749
  1,603,389
  1,866,227
  2,150,890
  2,456,920
  2,783,818
  3,131,092
  3,498,283
  3,885,001
  4,290,947
  4,715,929
  5,159,875
  5,622,838
  6,105,003
  6,606,689
  7,128,344
  7,670,545
  8,233,996
Revenue / Adjusted assets
  0.524
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
  0.454
Average production assets, $m
  10,923
  15,891
  23,808
  34,602
  48,894
  67,314
  90,474
  118,943
  153,221
  193,728
  240,792
  294,643
  355,421
  423,182
  497,910
  579,531
  667,929
  762,962
  864,476
  972,317
  1,086,343
  1,206,433
  1,332,494
  1,464,466
  1,602,327
  1,746,094
  1,895,823
  2,051,615
  2,213,607
  2,381,980
  2,556,952
Working capital, $m
  0
  -5,204
  -7,797
  -11,332
  -16,012
  -22,044
  -29,629
  -38,952
  -50,178
  -63,443
  -78,856
  -96,491
  -116,395
  -138,586
  -163,058
  -189,788
  -218,737
  -249,859
  -283,103
  -318,420
  -355,761
  -395,089
  -436,372
  -479,591
  -524,739
  -571,820
  -620,854
  -671,874
  -724,924
  -780,064
  -837,364
Total debt, $m
  11,119
  26,233
  49,178
  80,461
  121,883
  175,268
  242,392
  324,899
  424,245
  541,645
  678,045
  834,117
  1,010,266
  1,206,652
  1,423,228
  1,659,783
  1,915,979
  2,191,406
  2,485,615
  2,798,161
  3,128,632
  3,476,679
  3,842,030
  4,224,514
  4,624,065
  5,040,732
  5,474,681
  5,926,198
  6,395,688
  6,883,669
  7,390,775
Total liabilities, $m
  31,181
  46,055
  69,000
  100,283
  141,705
  195,090
  262,214
  344,721
  444,067
  561,467
  697,867
  853,939
  1,030,088
  1,226,474
  1,443,050
  1,679,605
  1,935,801
  2,211,228
  2,505,437
  2,817,983
  3,148,454
  3,496,501
  3,861,852
  4,244,336
  4,643,887
  5,060,554
  5,494,503
  5,946,020
  6,415,510
  6,903,491
  7,410,597
Total equity, $m
  2,154
  5,117
  7,667
  11,143
  15,745
  21,677
  29,135
  38,302
  49,341
  62,385
  77,541
  94,882
  114,454
  136,275
  160,339
  186,623
  215,089
  245,692
  278,382
  313,109
  349,828
  388,500
  429,095
  471,593
  515,987
  562,284
  610,500
  660,669
  712,834
  767,055
  823,400
Total liabilities and equity, $m
  33,335
  51,172
  76,667
  111,426
  157,450
  216,767
  291,349
  383,023
  493,408
  623,852
  775,408
  948,821
  1,144,542
  1,362,749
  1,603,389
  1,866,228
  2,150,890
  2,456,920
  2,783,819
  3,131,092
  3,498,282
  3,885,001
  4,290,947
  4,715,929
  5,159,874
  5,622,838
  6,105,003
  6,606,689
  7,128,344
  7,670,546
  8,233,997
Debt-to-equity ratio
  5.162
  5.130
  6.410
  7.220
  7.740
  8.090
  8.320
  8.480
  8.600
  8.680
  8.740
  8.790
  8.830
  8.850
  8.880
  8.890
  8.910
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  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
  -136
  1,261
  2,985
  5,262
  8,180
  11,822
  16,264
  21,568
  27,784
  34,948
  43,192
  52,306
  62,399
  73,460
  85,474
  98,419
  112,274
  127,014
  142,619
  159,070
  176,351
  194,454
  213,372
  233,108
  253,666
  275,060
  297,307
  320,431
  344,462
  369,433
Depreciation, amort., depletion, $m
  1,033
  1,294
  1,863
  2,640
  3,668
  4,993
  6,659
  8,707
  11,173
  14,088
  17,474
  21,197
  25,570
  30,445
  35,821
  41,693
  48,052
  54,889
  62,193
  69,951
  78,154
  86,794
  95,863
  105,357
  115,275
  125,618
  136,390
  147,598
  159,252
  171,366
  183,953
Funds from operations, $m
  3,111
  1,158
  3,124
  5,625
  8,930
  13,173
  18,481
  24,971
  32,741
  41,871
  52,421
  64,389
  77,876
  92,843
  109,281
  127,167
  146,472
  167,163
  189,207
  212,570
  237,224
  263,145
  290,317
  318,729
  348,383
  379,284
  411,450
  444,905
  479,684
  515,827
  553,387
Change in working capital, $m
  1,558
  -1,842
  -2,593
  -3,535
  -4,680
  -6,032
  -7,585
  -9,323
  -11,226
  -13,266
  -15,413
  -17,635
  -19,904
  -22,191
  -24,472
  -26,730
  -28,949
  -31,122
  -33,244
  -35,316
  -37,342
  -39,328
  -41,283
  -43,219
  -45,147
  -47,081
  -49,034
  -51,019
  -53,050
  -55,140
  -57,301
Cash from operations, $m
  1,553
  3,372
  5,717
  9,160
  13,610
  19,205
  26,066
  34,294
  43,967
  55,137
  67,834
  82,025
  97,780
  115,034
  133,753
  153,896
  175,421
  198,285
  222,451
  247,886
  274,565
  302,473
  331,600
  361,948
  393,530
  426,366
  460,484
  495,925
  532,734
  570,967
  610,687
Maintenance CAPEX, $m
  0
  -739
  -1,143
  -1,713
  -2,489
  -3,518
  -4,843
  -6,509
  -8,557
  -11,023
  -13,937
  -17,323
  -21,197
  -25,570
  -30,445
  -35,821
  -41,693
  -48,052
  -54,889
  -62,193
  -69,951
  -78,154
  -86,794
  -95,863
  -105,357
  -115,275
  -125,618
  -136,390
  -147,598
  -159,252
  -171,366
New CAPEX, $m
  -826
  -5,619
  -7,917
  -10,794
  -14,292
  -18,420
  -23,160
  -28,468
  -34,278
  -40,507
  -47,064
  -53,851
  -60,778
  -67,761
  -74,728
  -81,621
  -88,398
  -95,033
  -101,514
  -107,841
  -114,026
  -120,090
  -126,061
  -131,972
  -137,861
  -143,767
  -149,730
  -155,792
  -161,993
  -168,373
  -174,972
Cash from investing activities, $m
  -1,854
  -6,358
  -9,060
  -12,507
  -16,781
  -21,938
  -28,003
  -34,977
  -42,835
  -51,530
  -61,001
  -71,174
  -81,975
  -93,331
  -105,173
  -117,442
  -130,091
  -143,085
  -156,403
  -170,034
  -183,977
  -198,244
  -212,855
  -227,835
  -243,218
  -259,042
  -275,348
  -292,182
  -309,591
  -327,625
  -346,338
Free cash flow, $m
  -301
  -2,987
  -3,343
  -3,347
  -3,171
  -2,733
  -1,937
  -683
  1,131
  3,607
  6,833
  10,850
  15,804
  21,703
  28,581
  36,455
  45,330
  55,200
  66,048
  77,853
  90,589
  104,228
  118,745
  134,113
  150,312
  167,324
  185,136
  203,743
  223,143
  243,342
  264,350
Issuance/(repayment) of debt, $m
  -153
  13,639
  22,945
  31,283
  41,421
  53,386
  67,124
  82,508
  99,346
  117,399
  136,400
  156,072
  176,149
  196,386
  216,577
  236,554
  256,196
  275,427
  294,209
  312,546
  330,472
  348,046
  365,352
  382,484
  399,551
  416,667
  433,949
  451,517
  469,489
  487,981
  507,106
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  190
  13,639
  22,945
  31,283
  41,421
  53,386
  67,124
  82,508
  99,346
  117,399
  136,400
  156,072
  176,149
  196,386
  216,577
  236,554
  256,196
  275,427
  294,209
  312,546
  330,472
  348,046
  365,352
  382,484
  399,551
  416,667
  433,949
  451,517
  469,489
  487,981
  507,106
Total cash flow (excl. dividends), $m
  -142
  10,653
  19,601
  27,936
  38,250
  50,653
  65,186
  81,824
  100,477
  121,006
  143,233
  166,923
  191,953
  218,089
  245,158
  273,009
  301,527
  330,626
  360,257
  390,399
  421,060
  452,275
  484,097
  516,597
  549,863
  583,990
  619,085
  655,260
  692,632
  731,323
  771,456
Retained Cash Flow (-), $m
  1,833
  -4,490
  -2,549
  -3,476
  -4,602
  -5,932
  -7,458
  -9,168
  -11,038
  -13,044
  -15,156
  -17,341
  -19,572
  -21,821
  -24,064
  -26,284
  -28,466
  -30,603
  -32,690
  -34,727
  -36,719
  -38,672
  -40,595
  -42,498
  -44,395
  -46,296
  -48,217
  -50,169
  -52,165
  -54,220
  -56,345
Prev. year cash balance distribution, $m
 
  3,360
  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
 
  9,522
  17,052
  24,460
  33,648
  44,721
  57,728
  72,657
  89,439
  107,961
  128,078
  149,581
  172,381
  196,269
  221,094
  246,725
  273,060
  300,023
  327,567
  355,671
  384,341
  413,603
  443,502
  474,099
  505,468
  537,694
  570,869
  605,092
  640,467
  677,103
  715,111
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  8,736
  14,234
  18,416
  22,635
  26,612
  30,065
  32,741
  34,455
  35,099
  34,664
  33,216
  30,927
  27,989
  24,631
  21,084
  17,557
  14,220
  11,200
  8,576
  6,380
  4,609
  3,230
  2,195
  1,444
  920
  566
  336
  192
  106
  56
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
  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

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 $15008 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 54.8% 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 9%, 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 78%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4585 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% 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 68.4%.

Life of production assets of 13.9 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 -22.4%. 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 - $3987 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

▶ 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]
▶ 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]
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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