Recent price performance and business mix

Icahn Enterprises (IEP) has seen its unit price decline about 10% over the past month and about 5% over the past 3 months, drawing attention to how its diversified operations are currently valued.

The partnership spans multiple businesses, including investment funds, energy refining and renewables, automotive services and parts, food packaging, real estate, home fashion and pharma. As a result, the stock reflects a mix of cyclical and defensive drivers.

Energy remains the largest contributor to revenue at US$7,515 million, followed by automotive at US$1,402 million, with smaller contributions from food packaging, real estate, home fashion, pharma, investment activities and holding company operations.

Investors weighing the recent price moves often start by looking at this business mix, how each segment performs through different parts of the cycle and how consolidated results flow through to earnings and distributions.

At a recent unit price of US$7.39, Icahn Enterprises has seen its 1 month share price return fall 9.77%, even though the 1 year total shareholder return is 14.16% while the 3 and 5 year total shareholder returns remain materially negative. This suggests recent momentum has softened compared with the longer term record.

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With Icahn Enterprises trading at US$7.39, showing mixed recent returns, a value score of 4, an analyst price target of US$12.00 and an indicated intrinsic discount, is this a mispriced turnaround, or is the market already baking in future growth?

Preferred Price-to-Sales of 0.5x: Is it justified?

On a P/S of 0.5x and a last close of $7.39, Icahn Enterprises appears cheaper than both peers and the wider Global Industrials industry on this metric.

The P/S ratio compares the stock price to revenue per unit, which can be useful when a company is reporting losses and earnings based metrics are less meaningful. For Icahn Enterprises, this helps frame valuation against the scale of its US$9,779 million in revenue, even though it reported a loss of US$329 million and is forecast to remain unprofitable over the next 3 years.

Right now, the market is pricing Icahn Enterprises at a discount to both the Global Industrials industry average P/S of 0.8x and a peer average of 2.1x. Compared with an estimated fair P/S of 0.8x, the current 0.5x level sits well below where the market could potentially move if sentiment or expectations shifted closer to that fair ratio.

Result: Price-to-Sales of 0.5x (UNDERVALUED)

However, the story is still fragile, with ongoing losses of US$329 million and materially negative 3 and 5 year total returns, which may limit how quickly sentiment resets.

Another view on Icahn Enterprises' value

While the current 0.5x P/S ratio suggests Icahn Enterprises trades at a discount, our DCF model indicates a fair value estimate of about $8.59 per unit, compared with the recent $7.39 price. That is roughly a 14% difference. Whether this represents a meaningful margin of safety or simply reflects estimation uncertainty remains an open question.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Icahn Enterprises for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Given the mixed messages from price, profits and valuation so far, now is a good time to review the underlying data yourself and decide how comfortable you are with both the downside and upside. To help you weigh that balance, start with the 2 key rewards and 3 important warning signs.

Looking for more investment ideas?

If Icahn Enterprises has you thinking about portfolio balance, this is the moment to widen the net and line up a few more ideas worth your attention.

• Spot potential mispricings early by scanning a focused list of 44 high quality undervalued stocks.
• Prioritize resilience over drama by screening for 71 resilient stocks with low risk scores.
• Get ahead of the crowd by reviewing the screener containing 20 high quality undiscovered gems.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.