Carl Icahn, American business magnate and investor, was educated at Princeton University (A.B., philosophy, 1957) and New York University School of Medicine, but departed without graduating.
During 1968, he was capable to secure a position on the New York Stock Exchange and founded Icahn & Co. Inc., a brokerage firm. In 1978, he began to spread out his interests in a wide range of businesses. Throughout the years, he had won senior seats in several notable and established companies. In 1979, he was the leader of Bayswater Realty & Capital Corp., and in 1984, head of Chairman of ACF Industries, Inc. and many others. Nowadays, Icahn is CEO of Icahn Enterprises, a resourceful corporation involved in several business activities such as metals, real estate, and FMCG.
I consider interesting to examine Carl Icahn holdings to generate seed investment ideas for further research. I think that if a stock is a top holding from a well-known portfolio manager like Icahn's, the company must have passed rigorous research standards, so my conviction level to invest goes higher.
Navistar International Corp (NAV)
Navistar International Corporation produces and sales commercial trucks, mid-range diesel engines, buses, military vehicles and chassis for motor homes and step-vans, and supplies service parts for various trucks and trailers. The company, based in Warrenville, Illinois, is one of the biggest truck producers after Daimler and PACCAR. It works in three industry segments: Truck (67% of total revenue in fiscal 2010), Engine (17%), Parts (collectively called manufacturing operations) (14%) and Financial Services (2%).
Navistar continues to advance JVs and purchases that are aligned with its strategic objectives to get into global markets. In August 2009, the corporation put together a $39.2 million all-electric commercial truck venture with U.K.-based electric truck builder Modec Limited. The JV will annually manufacture several thousand trucks after the initial run of 400 in 2010. In September 2009, the firm established a JV, NC2 Global LLC, with Caterpillar Inc. in the U.S. which will create, produce and deliver commercial trucks with a focus on markets like Australia, Brazil, China, Russia, South Africa and Turkey. In November 2009, the company purchased the engine components business from Continental Diesel Systems U.S., LLC to back its diesel power system components. Besides, in December 2009, Navistar completed its purchase of the cement mixer manufacturing business of Continental Mfg. Company, Inc. and invested in the Danish technology firm Amminex, hereby gaining another tool to explore cost-effective, customer-friendly technologies that coincide with the company's advanced Exhaust Gas Recirculation platform, which supports 2010 Emissions Standards Technology.
Navistar's debt rank has improved. Since October 31, 2010, the firm's long-term debt totaled $4.87 billion, a decline from $5.29 billion a year before. Therefore, long term debt to capitalization ratio was 1.25 as of the previous date compared with 1.49 in the year-ago period.
NAV's current net profit margin is 12.34%, currently higher than its 2010 margin of 1.84%. I like Companies that increased profit margins in comparison to other years. It is essential to know the reason why that happened.
In terms of income and revenue growth, NAV has a 3-year average revenue growth of -1.77%. Its current revenue year over year growth is 14.93%, higher than its 2010 revenue growth of 4.98%. The fact that revenue increased from last year shows that business is performing well. The current Net Income year-over-year growth is 672.65%, higher than its 2010 Net Income y/y growth of -30.31%. I like when Net Income growth is higher than the past.
In terms of Valuation Ratios, NAV is trading at a Price/Book of -11.9x, a Price/Sales of 0.2x and a Price/Cash Flow of 3.1x in comparison to its Industry Averages of 3.1x Book, 0.6x Sales and 8.1x Cash Flow. It is essential to analyze the current valuation of NAV and check how is trading in relation to its peer group.
In regard to Valuation, presently shares of Navistar International Corporation are trading at 7.6X our 2012 EPS calculation of $5.14. The firm's recent trailing 12-month gains multiple is 12.7, in comparison with the 16.2 average for the peer group and 14.3 for the S&P 500. For the last five years, shares of Navistar International have dealt in a range of 3.3X to 113.4X trailing 12-month earnings. The stock is also dealing at a discount to the rival group, based on forward gains estimations. The present P/E, next to the lower end of the historical range, is at a 37% discount to the peer group for 2012.
Even though Navistar has a debt/capital ratio of 1.5, the biggest share of the $4.9 billion in debt comes from the company's financing subsidiary. Despite the group's EBITDA/interest coverage ratio averaged hardly above 2 times per year for the past five years, Navistar has enough unlimited cash to honor its debt principal payments for the next three years in its trucking business.
El Paso Corp (EP)
El Paso Corporation is an important contributor in both the natural gas transmission and exploration and production space in the U.S. It mainly works in two business branches Pipelines and Exploration & Production which together account for its lion's share of revenues, incomes and cash flows. The Pipelines business comprises over 43,100 miles of interstate natural gas pipelines that connect some of the largest natural gas producing basins in the U.S. The Exploration & Production business centers on purchasing, creating and producing natural gas, natural gas liquids and oil. The Marketing segment sells the natural gas, oil and NGL produced by El Paso's E&P division.
El Paso basically works in the pipeline and E&P businesses. Management has recovered investment grade status of El Paso's pipeline business and set the company as one of the top independent E&P operators in the industry, by divesting more risky, less predictable assets and purchasing assets congruent with the firm's strengths. Previously this year, El Paso Corp. had informed its projects to split into two publicly traded companies: one including El Paso's Pipeline Group, its Midstream Group, and its general and limited partner interests in El Paso Pipeline Partners L.P., and the other containing its exploration & production wing. The Pipeline firm will maintain the name El Paso Corp. and will continue dealing on NYSE under the ticker symbol EP, while the spun-off E&P segment will be named EP Energy Corporation and deal on NASDAQ under the ticker symbol EPE.
Lately, El Paso Corp. started an agreement with Kinder Morgan Inc. (KMI), in which Kinder Morgan will purchase El Paso Corp. for $38 billion, including the company's debt as well as MLP interest in El Paso Pipeline Partners L.P. Generating the largest midstream and the fourth largest energy corporation in North America, the operation is estimated to produce immediate shareholder value through strong cash flow accretion and significant future growth opportunities, confirming to be a win-win for both companies. The transaction will be directly accretive to profits per share at Kinder Morgan Inc. and Kinder Morgan Management (KMR) as well as distributions per unit at MLPs Kinder Morgan Energy Partners and El Paso Pipeline Partners. Besides, El Paso thinks this transaction will give even greater value to its shareholders than its planned spin-off of the exploration and production business.
EP's current net profit margin is 2.90%, currently lower than its 2010 margin of 15.62%. I do not like when Companies have lower profit margins than the past. That could be a reason to analyze why that happened. Its current return on equity is 3.75%. Lower than the +20% standard I look for in Companies I invest and also lower than its 2010 average ROE of 25.64%.
In terms of income and revenue growth, EP has a 3-year average revenue growth of -3.23%. Its current revenue year over year growth is 5.29%, higher than its 2010 revenue growth of -0.32%. The fact that revenue increased from last year shows that the business is performing well. The current Net Income year over year growth is -81.40%.
In terms of Valuation Ratios, EP is trading at a Price/Book of 5.2x, a Price/Sales of 4.7x and a Price/Cash Flow of 10.9x in comparison to its Industry Averages of 1.7x Book, 0.7x Sales and 5.9x Cash Flow. It is essential to analyze the current valuation of EP and check how is trading in relation to its peer group.
With reference to Valuation, El Paso's high-grade E&P assets and large inventory of pipeline plans provide considerable growth potential over the long run. The firm's fourth quarter outcomes were influenced by escalating operating expenses, which impacted outcomes.
In spite of that, El Paso Corp. has undertaken a couple of growth projects that will enhance its rank in North America. Furthermore, investor focus is still on the outstanding purchase by Kinder Morgan, slated to create one of the largest pipeline corporations in the U.S. The purchase is estimated to become real by the second quarter of 2012. In spite of these positives the company prefers to remain on the sidelines pending improvement in El Paso's Pipeline outcomes and realization of the takeover bid.
El Paso shares are currently trading at 27.8x trailing 12-month EPS, in comparison to the 28.6x average for the peer group.
El Paso has centered on enhancing its financial health, by means of asset sale proceeds to diminish debt by almost $6.8 billion from 2003 peak net debt levels to a still-too-high level of $12.6 billion at the end of 2011. Debt metrics deteriorated in 2011 because of declining EBITDA; debt/EBITDA increased to 5.6 times and interest coverage decreased to 2.4 times, levels that make us somewhat uneasy but will soon be Kinder Morgan's dilemma.
Federal Mogul Corporation (FDML)
The major global supplier of powertrain, chassis and safety technologies, FEDERAL MOGUL CORPORATION, serves the world's foremost original equipment manufacturers of automotive, light commercial, heavy-duty, agricultural, marine, rail, off-road and industrial vehicles, and the global aftermarket. It was established in Detroit in 1899, is based in Southfield, Michigan, and employs 50,000 people in 35 countries. The firm's primary technology and innovation, lean manufacturing expertise, as well as marketing and distribution deliver world-class products, brands and services with quality distinction at a competitive cost. The company is focused on its viable worldwide profitable growth strategy, providing value and satisfaction to its customers, shareholders and employees.
Sales in the fourth quarter of 2011 were $1.7 billion, a rise of 5% on a steady dollar basis in comparison to the fourth quarter of 2010. Sales in 2011 equate record levels at $6.9 billion, up 11%, induced by an 18% rise in sales to original equipment customers, which surpassed the 5% worldwide market growth pace during the same period. The company's sales growth pace throughout 2011 surpassed the underlying market growth pace in all major regions. The firm in the fourth quarter of 2011 upgraded operating margin to 4.8% of sales from 4.5% in the fourth quarter of 2010 and for the full-year increased operating margin by $76 million, or 24%, to 5.8% of sales, as SG&A expense improved by one full percentage point to 10.0% of sales.
Adjusted net income, omitting non-cash impairment charges discussed below, for the full-year was $203 million, or $2.04 per share, showing the company's solid performance during 2011. The firm recorded adjusted net income of $51 million in Q4 2011, up from $38 million in the fourth quarter of 2010. In the fourth quarter it had Operational EBITDA of $158 million or 9.5% of sales. Operational EBITDA for the full year was $702 million or 10.2% of sales, up from $671 million in 2010. The firm registered a net loss in the fourth quarter of 2011 of $(239) million and a $(90) million net loss for the full year, reflecting a fourth quarter of 2011 impairment charge of $(304) million. The company's 2011 annual benevolence assessment indicated a decline in the fair value of selected product lines that have been affected by factors in the U.S. aftermarket. Still, the firm thinks that increases in its other reporting units such as Powertrain would mainly offset the decline; but United States Generally Accepted Accounting Principles do not permit the recognition of earning in the value of one reporting unit to offset impairment charges in another reporting unit.
The Federal-Mogul's plan for sustainable worldwide profitable growth is based on edge technology and innovation, competitive cost and best-in-class quality products and services. It achieved an 18% global OE revenue growth rate in 2011, surpassing the global market growth rate of 5%, with stable global aftermarket sales, including strong growth in Europe, up 6%, China, up 18% and India, up 12%. The firm's OE sales growth outpaced the underlying rate in all markets. In 2011, it achieved record OE sales while managing more than 100 new customer program launches with new Federal-Mogul technologies.
Besides, customers continue to recognize its leading technology and innovation by involving Federal-Mogul early in new powertrain and vehicle development projects, leading to substantial conquest OE business awards that become global aftermarket business opportunities as well. I think the significant capital investment in its operations to support new global customer programs is a strong base for its future growth.
FDML's current net profit margin is -1.30%, currently lower than its 2010 margin of 2.59%. I do not like when Companies have lower profit margins than the past. That could be a reason to analyze why that happened. Its current return on equity is -8.07%. Lower than the +20% standard I look for in Companies I invest and also lower than its 2010 average ROE of 14.00%.
In terms of income and revenue growth, FDML has a 3-year average revenue growth of 0.21%. Its current revenue year over year growth is 11.11%, lower than its 2010 revenue growth of 16.60%. I do not like when current revenue growth is less than the past year. It generally shows that business is decelerating for some reason.
In terms of Valuation Ratios, FDML is trading at a Price/Book of 1.8x, a Price/Sales of 0.3x and a Price/Cash Flow of 7.3x in comparison to its Industry Averages of 2.5x Book, 0.6x Sales and 11.6x Cash Flow. It is essential to analyze the current valuation of FDML and check how is trading in relation to its peer group.
American Railcar Industries (ARII)
American Railcar Industries, Inc. is a major North American producer of covered hopper and tank railcars and also repairs and refurbishes railcars, provides fleet management services and designs and manufactures railcar and industrial components, which are used in the production of its railcars as well as railcars and non-railcar industrial products produced by others.
4Q 2011 main features:
- Total revenues amounted to $196.8 million and doubled the comparable $95.3 million for the 4Q of 2010.
- Railcar cargos were approximately 2,170 railcars and more than doubled the approximately 950 railcars for that same period in 2010.
- Gross profit was $24.6 million mostly greater than the $3.1 million for the same period in 2010.
- Adjusted EBITDA was $23.7 million in comparison to $2.5 million for the same period in 2010.
- Net gains per share were $0.24 in comparison to a net loss per share of $(0.37) for that same period in 2010 - a $0.61 per share rise.
The firm's orders for 2011 rose to approximately 10,710 railcars, the largest level since 2005. The corporation's backlog since December 31, 2011 was approximately 6,530 railcars, with approximately 2,200 railcars for lease. The firm had approximately 1,050 railcars in its backlog since December 31, 2010.
ARI receives orders for over 10,000 railcars throughout 2011, the second highest total in Company history, exceeded only by orders in 2005. Revenues, railcar cargos and gross profit increased in the 4Q of 2011 in comparison to the 3Q of 2011, and versus the comparable period of 2010. It substantially increased production in 2011 to meet its customer demand and delivered over 2,100 railcars during the 4Q.
ARII's current net profit margin is 0.83%, currently higher than its 2010 margin of -9.87%. I like Companies that increased profit margins in comparison to other years. It is essential to know the reason why that happened. Its current return on equity is 1.40%. Lower than the +20% standard I look for in Companies I invest but higher than its 2010 average ROE of -8.39%.
In terms of income and revenue growth, ARII has a 3-year average revenue growth of -13.73%. Its current revenue year over year growth is 89.86%, higher than its 2010 revenue growth of -35-39%. The fact that revenue increased from last year shows that the business is performing well.
In terms of Valuation Ratios, ARII is trading at a Price/Book of 1.7x, a Price/Sales of 1.0x and a Price/Cash Flow of 19.3x in comparison to its Industry Averages of 2.6x Book, 2.5x Sales and 9.5x Cash Flow. It is essential to analyze the current valuation of FDML and check how is trading in relation to its peer group.
WebMD Health Corporation (WBMD)
WebMD is well ranked to increase its lead and penetration in the high value segment of medical marketing.
For the twelve months that ended December 31, 2011:
- Revenue was $558.8 million, in comparison to $534.5 million in the previous year period, an increase of 4.5%. Public portal advertising and sponsorship revenue rose 6.8% to $477.3 million. Private portal services revenue decline 7% to $81.5 million.
- Adjusted EBITDA was $181.2 million, in comparison to $173.6 million in the previous year period, an increase of 4.4%.
- Net income was $74.6 million or $1.25 per diluted share in comparison to $54.1 million or $0.88 per diluted share in the previous year period. Net income would have been $53.8 million or $0.90 per diluted share in the present period in comparison to $61.2 million or $1.00 per diluted share in the previous year period, without the effect, in the present period, of an after-tax gain on investments of $11.7 million, after-tax transaction costs of $1.3 million and after-tax income from discontinued operations of $10.4 million and, in the previous year period, of an after-tax loss on convertible notes of $14.1 million, an after-tax earn on investments of $5.2 million and after-tax income from discontinued operations of $1.8 million.
Since the election of Anthony Vuolo as Interim CEO six weeks ago, the company has engaged in prioritizing the efforts that will best position the firm to profit from future growth opportunities. The management team is working hard to guarantee that alignment around the key efforts is created throughout the entire organization.
WBMD's current net profit margin is 13.35%, currently higher than its 2010 margin of 10.12%. I like Companies that increased profit margins in comparison to other years. It is essential to know the reason why that happened. Its current return on equity is 10.45%. Lower than the +20% standard I look for in Companies I invest but higher than its 2010 average ROE of 8.21%.
In terms of income and revenue growth, WBMD has a 3-year average revenue growth of 14.37%. Its current revenue year over year growth is 4.54%, lower than its 2010 revenue growth of 21.89%. I do not like when current revenue growth is less than the past year. It generally shows that business is decelerating for some reason. The current Net Income year over year growth is 37.92%, higher than its 2010 Net Income y/y growth of -53.92%. I like when Net Income growth is higher than the past.
In terms of Valuation Ratios, WBMD is trading at a Price/Book of 2.2x, a Price/Sales of 2.7x and a Price/Cash Flow of 11.0x in comparison to its Industry Averages of 4.8x Book, 2.6x Sales and 23.8x Cash Flow. It is essential to analyze the current valuation of WBMD and check how is trading in relation to its peer group.