Billionaire investor Carl Icahn’s Icahn Enterprises (IEP) is set to boost its stake in minor oil refiner CVR Energy (CVI) by cutting its dividend payment to half. IEP currently has a majority stake of 66% in CVI and plans to increase it to 81%, according to the Wall Street Journal. This increase will be funded by slashing IEP’s quarterly dividend to $0.50 per share from $1.00 per share paid earlier.
Details of Icahn’s Investment
According to the documents viewed by WSJ, Icahn plans to buy an additional 15 million shares of CVR Energy at $17.50 apiece, implying an additional 20% stake. The price reflects a nearly 6% premium to CVI stock’s closing price of $16.52 on November 7. Icahn believes that CVR Energy is currently undervalued and shareholders could benefit from the premium price. The report also noted that Icahn believes the market is currently applying extreme valuations to companies, and this seems like an appropriate time for activists to look for great opportunities.
This is Icahn’s second dividend cut since short seller Hindenburg Research reported that IEP was overvalued, inflated its assets, and had an unsustainable dividend payment. Before the short seller report, IEP paid $2 per share in quarterly dividends since 2011. Icahn is expected to release its detailed statement this morning, alongside its Q3 FY24 results.
CVR Energy has had a rough patch for quite some time, with earnings beating consensus in only five of the past eight quarters. Importantly, CVR Energy suspended its Q3 dividend last month, after reporting worst-than-expected earnings, which dragged down its shares. The fall in the value of CVI stock has also impacted IEP’s balance sheet. Year-to-date, IEP shares have lost 11.2%
Is CVR Energy a Good Buy?
Analysts are uncertain about CVR Energy stock’s trajectory. On TipRanks, CVI stock has a Moderate Sell consensus rating based on two Holds and three Sell ratings. The average CVR Energy price target of $21.75 implies 31.7% upside potential from current levels. Meanwhile, CVI shares have declined 42.6% so far this year.
