What turned out to be a slow year for billionaire Carl Icahn’s conglomerate Icahn Enterprises (IEP) has become decidedly worse, with IEP stock now staring at a nearly 38% loss since the start of January. Last week, shares of the activist investor’s firm came under the crosshairs of Hindenburg Research. Now, with IEP facing the glare of a federal investigation, circumstances don’t look swell for the entity.
To be sure, retail investors of IEP stock won’t take too kindly to Hindenburg, which natively arouses controversy for its short-selling specialty. Essentially, Hindenburg researches potentially overvalued companies, seeking a downward correction. At the same time, it initiates a short position on the targeted enterprises, profiting from their slide (so long as circumstances align to their intentions).
Naturally, such a practice seems awfully shady to say the least. However, brash activist investors like Carl Icahn should really expect no quarter. Often, they do the same thing but on the opposite side of the equation.
IEP Stock Faces Serious Heat
According to The Wall Street Journal, Icahn disclosed that federal prosecutors placed his investment company under investigation. On May 2, Hindenburg Research blasted IEP, primarily noting that its business units were inflated by more than 75% due to excessively rich premiums against last reported net asset value (NAV) stats. The next day, the U.S. Attorney’s Office for the Southern District of New York contacted IEP regarding additional disclosure documents.
These include information about the value of its assets, corporate governance, dividends and other topics, based on IEP’s securities filing Wednesday. Further, management stated in the filing that it’s cooperating with the investigation. As well, it noted that the matter won’t impose a significant impact on the business. Nevertheless, IEP stock closed down more than 15% on May 10.
True to form, Carl Icahn lashed out against the short seller. “Hindenburg Research, founded by Nathan Anderson, would be more aptly named Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians,” remarked the billionaire in the company’s response to Hindenburg’s bearish assessment.
In the past five years, the loss in IEP stock approaches 54%.
If that wasn’t distracting enough for investors, IEP stock represented a less-than-encouraging highlight for Barchart’s screener for unusual stock options volume. Following the Wednesday close, total volume reached 79,119 contracts against an open interest reading of 164,316. In addition, the delta between the day’s volume and the trailing one-month average metric came out to 289.04%.
Drilling down, put volume hit 49,455 contracts, exceeding the call volume of 29,664. This pairing yielded a put/call ratio of 1.67, on paper favoring the pessimistic side of the trade.
Icahn Growls in the Mirror
To be sure, IEP is doing more than merely allowing its majority owner to hurl barbs at a contrarian investor. A recent press release noted that the Schall Law Firm announced that it’s investigating claims against Icahn Enterprises. The statement also encourages investors with losses tied to IEP stock to contact the firm.
As well, IEP’s published response to Hindenburg attempted to frame the short seller as a vulture preying on the “hard-earned savings of individual investors.” It also promised that unlike allegedly other victims, the investment company “will not stand by idly” as it takes “all appropriate steps to protect” its unitholders and fight back.
“We believe that the greatest paradigm for investment success is activism. We have a long-held belief that at far too many companies today there is no real corporate governance and therefore no accountability and, as a result, companies are not nearly as productive as they should be,” stated IEP in part.
However, the reality with activism is that it’s not a one-size-fits-all approach. And frankly, Carl Icahn would probably know that best. As St. Louis Magazine pointed out, Icahn took over Trans World Airlines (TWA) in 1985 and “systematically stripped it of its assets.”
Initially, Icahn told TWA that he wanted to make the company profitable, facilitating deals such as the acquisition of Ozark Airlines in 1986. However, signs began emerging that the activist investor wasn’t sincere in his overtures.
“It became more and more apparent that Carl was not interested in growing the airline but in using TWA as a financial vehicle to acquire wealth for himself,” said Jeff Darnall, who flew for the airline from 1989 to 2003.
Likely, those harmed by Carl Icahn’s brand of investment activism don’t hold a grudge against stakeholders of IEP stock. At the same time, they’re probably not feeling much sympathy. If you live by the sword, you run the risk of dying by the sword.
It’s Probably a Sell at This Point
Unsurprisingly, the Barchart Technical Opinion indicator rates IEP stock a 100% sell. It also ranks in the top 1% of all short-term signal directions. On the other end, long-term indicators fully support a continuation of the trend, which doesn’t provide much hope for bargain hunters looking to secure a once-in-a-blue-moon discount.
To be fair, technical analysis leaves much room for interpretation. However, if IEP stock doesn’t make a meaningful recovery back to at least the $40 level immediately, it may court additional questions about credibility. Therefore, conservative investors should stay far away from this ugly situation.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
