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Why Is Icahn Enterprises (IEP) Stock Up 10% Today?

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In an effort to right the ship amid hefty losses this year, conglomerate Icahn Enterprises (NASDAQ:IEP) — controlled by notorious activist investor Carl Icahn — saw its shares pop higher on Friday. Primarily, the company announced a dividend of $1 per share in the third quarter, representing a yield of around 20%, per The Wall Street Journal. Still, IEP stock suffers credibility issues.

For now, sentiment is positive, with investors reassured that Icahn is committed to rewarding shareholders with passive income. Adding to the careful but brewing sense of optimism is the conglomerate’s recent third-quarter performance. Although Icahn posted a loss of 1 cent per share — thus missing the consensus target of earnings of 34 cents per share — it rang up sales of $3 billion.

That sales tally beat analysts’ revenue estimate of $2.7 billion. Of course, most, if not all, of the attention centered on the dividend.

In May of this year, short-selling specialist Hindenburg Research took Icahn to task for overvaluing its holdings. In the scathing report, Hindenburg accused IEP of relying on a “Ponzi-like” structure to pay dividends. Responding to the criticism, the conglomerate announced its intention to pay a dividend of $2 per share in Q1 2023.

IEP Stock Still Faces a Massive Credibility Challenge

Although Friday’s development offered reassurances to stakeholders, IEP stock remains deeply embattled. Even inclusive of today’s robust price action, shares have slipped about 63% since the beginning of the year. Against the trailing five-year period, the company is staring at a market loss of almost 73%.

However, arguably, the most conspicuous factor in the fallout is how embarrassing the situation is for Icahn, both the company and the activist investor. First, despite efforts to combat Hindenburg’s brutal takedown, Icahn Enterprises halved its quarterly distribution to $1 from $2 in August. Subsequently, that move sent IEP stock spiraling down after posting a series of promising northbound sessions.

Second, Carl Icahn was force-fed a serving of his typically cold dishes. According to an article by The New York Times, the billionaire investor hired a private investigator to dig up dirt on former Illumina (NASDAQ:ILMN) CEO Francis deSouza. Subsequently, Icahn wrote letters to Illumina’s shareholders calling out deSouza’s lack of leadership, even going so far as to publicize details of his divorce.

However, Hindenburg’s Nathan Anderson gave Icahn the Icahn treatment, hurting not only IEP stock but also the activist’s net worth. “It is very, very embarrassing for Carl because this guy beat him and beat him at his own game,” said Mark Stevens, who authored a biography of the controversial investor.

Why It Matters

Despite the drama, Icahn Enterprises has at least one vocal supporter. Per TipRanks, Jefferies analyst Daniel Fannon rates IEP stock a “buy” with a $27 price target, implying a 42% return from the time-of-writing price.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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