It's been a tough year for Carl Icahn's holding company, beaten down by criticism from a short-seller and questions about the sustainability of its dividend. But third-quarter results from Icahn Enterprises (IEP -0.12%) served to reassure investors, and the stock is reacting, up 15% as of 10:30 a.m. ET on Friday.
One of the biggest names in activist investing is under attack
Activist investor Icahn has spent most of his career on the attack, but the tables were turned this summer when Hindenburg Research released a report calling Icahn Enterprises "substantially overvalued" and accusing the company of relying on a "Ponzi-like" structure to fund its dividend.
Icahn Enterprises stock lost about half of its value the month that report came out and has continued on a downward trend in the months since on concerns about whether the dividend was sustainable.
Friday's earnings report should help ease some of those fears. Icahn Enterprises lost $0.01 per share in the quarter on revenue of $3 billion, compared to a loss of $0.37 per share on sales of $3.4 billion a year prior. As important, the company maintained its quarterly dividend distribution of $1 per share.
Icahn Enterprises halved its dividend from $2 to $1 per share last quarter, so maintaining the same payout this time around is a big development. Hindenburg had said back in August that it was maintaining its short after the dividend cut, predicting the payout would eventually be eliminated.
Is Icahn Enterprises a buy after third-quarter results?
The good news for investors is that things are not getting worse. The bad news is that Hindenburg's research from earlier this year seems to have made an impact, and it is unclear how quickly Icahn Enterprises can recover.
IEP has always been a bit of an oddity, operating as a holding company with subsidiaries in the automotive, food packaging, real estate, pharmaceutical, and investment industries. Icahn has restructured some of his personal debt obligations in response to Hindenburg criticisms, but the underlying businesses in the portfolio have mixed growth profiles.
It appears likely that the dividend, at best, will be more volatile from here. And that adds to the risk in owning this stock. Investors are breathing a sigh of relief after earnings, but Icahn Enterprises remains not for the faint of heart even following the release.
