Carl Icahn's Top Positions (Part I)

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Carl Icahn is one of the most famous activist investors in the world. He often purchases a large stake in publicly traded companies and forces them to take corporate actions to significantly increase their market value. When Icahn is building stakes in a particular company, it might indicate an investment opportunity. Let’s have a look at several big positions in Icahn’s current portfolio to see whether or not investors should follow him into these companies. 

CVR Energy (NYSE: CVI) is the second biggest position in his portfolio, after his own firm Icahn Enterprises LP. As of September 2012, Icahn owned nearly 71.2 million shares in the company, accounting for 23.4% of his total portfolio. He is the chairman of the company’s Board, and his stake represented 82% of the company. CVR Energy has two main business segments: petroleum and nitrogen fertilizer. The majority of CVR’s revenue has come from the petroleum business segment. In 2011, the petroleum segment contributed more than $4.75 billion into the total revenue, whereas the nitrogen fertilizer segment generated only a bit more than $300 million. However, the second segment enjoyed a better profit margin. In 2011, nitrogen fertilizer had around $136.2 million in operating income, or 45.4% operating margin, whereas petroleum had $465.7 million in operating income, or 9.8% operating margin. Like other refiners such as HollyFrontier (NYSE: HFC) and Valero Energy (NYSE: VLO), 2012 was a very good year for CVR.

<img src="http://media.ycharts.com/charts/34a4a59e4f13dbaa53996ce057bcfc5d.png" />

CVI data by YCharts

Over the last 12 months, shares of CVR have enjoyed a significant rise of more than 120%. HollyFrontier and Valero also joined the rise, with 63.5% and a 65% increases, respectively. The significant increase in shale oil production and the WTI/Brent spread has helped to fuel the refiners’ boom. In addition, the low natural gas price has been also beneficial to the nitrogen fertilizer business of CVR. Among the three, HollyFrontier seems to be the cheapest, with only 2.84x EV/EBITDA. Valero and CVR had similar EV multiples of 4.57x and 4.79x, respectively.

CVR had quite a decent balance sheet. As of September 2012, it had $1.485 billion in total stockholders’ equity, $988 million in cash, and no long-term debt. In addition, it also booked more than $400 million in deferred tax liabilities, which could be considered an interest-free loan from the government.

The third biggest position in Icahn’s portfolio is Forest Laboratories (NYSE: FRX). As of September 2012, Icahn owned more than 30.6 million shares in the company, accounting for 9.8% of his portfolio. Forest is the manufacturer of branded ethical drugs, which require prescriptions of physicians. The majority of its sales derived from the Central Nervous System franchise, accounting for 84% of the total net sales. The central nervous system franchise comprised several brands, including Lexapro, Namenda, Celexa, Savella and Viibryd. However, what might worry investors is a high level of customer concentration. In fiscal 2012, McKesson Drug accounted for 36% of the total net sales, Cardinal Health represented 30%, and AmerisourceBergen took around 20% of the total net revenue.

One of its top selling products, Lexapro, has already expired, which has driven fierce competition from generic competitors. However, Forest’s R&D seemed to work quite efficiently.  In the past 5 years, Forest has received seven NDA approvals in 6 FDA divisions, including Cardio, Neurology, Anti-infective and Allergy. What interests investors is Forest’s debt-free operation. As of September 2012, it had nearly $5.8 billion in total stockholders’ equity, more than $2.1 billion in cash, and no debt. It also had the deferred tax liabilities of $865 million. Currently, Forest is trading at $38.11 per share, near its 52-week high. The total market capitalization is $10.14 billion. The market is valuing the company at 10.17x EV/EBITDA.

Foolish Bottom Line

Personally, I think both companies are reaching its high price. The nice increase of CVR in 2012 was due to WTI/Brent spread and low natural gas price, and those factors could not continue forever. For Forest, I would rather wait to see its future improvement to fill the hole of Lexapro before initiating any position in this stock. 


hoangquocanh has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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