Icahn Enterprises LP (IEP)’s Investment Philosophy

Recently, Icahn Enterprises LP (NASDAQ:IEP), a listed diversified holding company led by famous activist investor Carl Icahn, announced its impressive first-quarter earnings results. In April, Icahn Enterprises experienced a sweet gain of almost 38%, from $54.50 per share to more than $75 per share. Should we invest alongside Carl Icahn by investing in Icahn Enterprises at its current trading price?

Icahn Enterprises’ investment philosophy

Icahn Enterprises LP (NASDAQ:IEP), founded in 1987, is a diversified holding company, investing in various industries including Automotive, Energy, Railcar, Food Packaging, and Real Estate. Interestingly, the partnership explained that its investing philosophy was to seek out undervalued companies, following the Graham & Dodd stock valuation methodology. Nevertheless, while Graham & Dodd investors often wait for the results, Icahn Enterprises LP (NASDAQ:IEP) actively involves itself in corporate actions to unlock the potential value of the target companies.

In the first quarter of 2013, it generated more than $4.57 billion in revenue, 90% higher than the first quarter of 2012. The net gain from investment activities came in at $578 million, nearly ten times higher than the $58 million investment gain in Q1 2012. The net income attributable to Icahn Enterprises LP (NASDAQ:IEP) experienced a 465% increase to $277 million, or $2.50 diluted income per LP unit. The cash distributions declared per LP unit reached $1.

Dell is worth more than $22.80 per share?

Let’s take a closer look into the investment gains in the past three months. Most of the gain was made from an increasing value in equity securities of technology and energy. Indeed, Carl Icahn has been quite active in Dell Inc. (NASDAQ:DELL) and Transocean LTD (NYSE:RIG). Dell, one of the largest global PC makers, has dropped from $14.30 per share to around $13.30 per share. The significant drop in its share price was due to the withdrawal of The Blackstone Group L.P. (NYSE:BX)’s bid for the company.

Although The Blackstone Group L.P. (NYSE:BX) believed in Dell Inc. (NASDAQ:DELL)’s strong market position, there were two reasons why Blackstone did not pursue the buyout. First, the global PC market experienced a significant decline of as much as 14%, which was considered to be inconsistent with the modest growth projection of the company’s management. Second, The Blackstone Group L.P. (NYSE:BX) saw that the financial performance of Dell has been declining. According to Blackstone, Dell revised its operating profit estimate for the full year downward, from $3.7 billion to only $3 billion.

Carl Icahn is more bullish with his $15.65 per share offer for Dell Inc. (NASDAQ:DELL). Icahn Enterprises LP (NASDAQ:IEP) currently owns around 100 million shares in the company, accounting for 6% of the total outstanding shares. Icahn suggested that Dell should pay a $9 special dividend to shareholders. He thought that Dell should be worth around $22.81 per share, including the pro-forma “stub” at around $13.81 per share (discounted cash flow analysis) and a dividend of $9 per share.