Icahn Enterprises (NASDAQ:IEP) stock was a darling among dividend collectors not long ago. However, the sentiment surrounding Icahn Enterprises has deteriorated rapidly in 2023. I am neutral on IEP stock and strongly recommend learning how the company lost favor among investors this year, as it could be dangerous to take a share position now.
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Icahn Enterprises is run by Carl Icahn, who is known as a billionaire activist investor. Icahn Enterprises invests in a wide variety of industries, from energy to food packaging, real estate, pharmaceuticals, and more.
Carl Icahn and his firm were fairly well respected for years, but a short seller’s scathing report cast Icahn Enterprises in a not-so-positive light. Ultimately, it’s up to you to separate the confirmed facts from the allegations. Still, the financial facts pertaining to Icahn Enterprises probably won’t persuade you to buy IEP stock this year.
A Short Seller Slams Icahn Enterprises
For the most part, IEP stock held steady from late 2016 to May 2023. The stock didn’t gain much during that timeframe, but it also didn’t collapse. Then, in May of this year, a well-known short seller slammed Icahn Enterprises with a harsh report.
The short seller is Hindenburg Research, and while I won’t assess the accuracy of the claims made in the short report about Icahn Enterprises, I will say that the allegations are alarming. To sum it up, Hindenburg Research claimed that Icahn “has been using money taken in from new investors to pay out dividends to old investors.” Furthermore, the short seller alleges that “Such ponzi-like economic structures are sustainable only to the extent that new money is willing to risk being the last one ‘holding the bag.'”
Also, while Hindenburg Research acknowledges that Icahn is a “legend of Wall Street,” the short seller opines that Icahn “has made a classic mistake of taking on too much leverage in the face of sustained losses: a combination that rarely ends well.” One thing that’s indisputable is that a buy-and-hold position in IEP stock hasn’t ended well in 2023 so far.
Prior to the publication of the short report, Icahn Enterprises stock was a $50 stock. Now, it trades at half of that price. Even after staging a partial comeback, the stock fell back to the $25 area after Icahn Enterprises cut its dividend.
Who’s to Blame for Icahn Enterprises’ Financial Problems?
Icahn Enterprises still pays a decent dividend of $1 per share, but that’s half of the company’s previous quarterly dividend payment of $2 per share. Besides, Hindenburg Research’s report seems to suggest that Icahn Enterprises’ dividend was never sustainable and, more generally, that the company’s financial woes were self-created.
It’s challenging to determine who’s to blame for Icahn Enterprises’ current problems. In the company’s second-quarter 2023 earnings release, Icahn Enterprises pins some of the blame on Hindenburg Research. Specifically, Icahn stated that his company’s Q2 results “partially reflected the impact of short-selling on companies we control or invest in, which I attribute to the misleading and self-serving Hindenburg report concerning our company.”
Irrespective of the reasons, it’s difficult to feel optimistic about Icahn Enterprises after its second-quarter net loss of $0.72 per share. Analysts, in contrast, had expected the company to report positive earnings of $0.25 per share. This continues an unsettling pattern, as Icahn Enterprises has reported negative EPS for multiple consecutive quarters despite Wall Street predicting positive EPS.
Is IEP Stock a Buy, According to Analysts?
On TipRanks, IEP comes in as a Moderate Buy based on a single Buy rating assigned by Jefferies analyst Daniel Fannon during the past three months. Based on Fannon’s estimate, his Icahn Enterprises price target is $27, implying 11.75% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell IEP stock, the most accurate analyst covering the stock (on a one-year timeframe) is the aforementioned Daniel Fannon, with an average return of 15.14% per rating and an 86% success rate. Click on the image below to learn more.
Conclusion: Should You Consider IEP Stock?
Icahn Enterprises is run by a famous billionaire financier, but this doesn’t necessarily mean that you should invest in the company now. First and foremost, it’s likely wise to let the dust settle as the debate between Hindenburg Research, Icahn Enterprises, and a slew of analysts and commentators continues.
In time, history will hopefully show whether Hindenburg Research’s allegations are true and whether Icahn Enterprises’ dividend is sustainable. For now, however, I feel it’s wise to play it safe and stay away from IEP stock.
