Icahn's $7/Share Federal-Mogul Offer Is Conservative, Analyst Says

FBR & Co’s Christopher Van Horn maintained a Market Perform rating for Federal-Mogul Holdings Corp (NASDAQ: FDML), while reducing the price target from $9 to $7, after the company announced its FY15 and 4Q15 results, and announced that it had received an offer from Icahn Enterprises LP (NASDAQ: IEP) to acquire the remaining 18 percent public float for $7.00 per share.

Federal-Mogul’s profitability in 4Q was significantly ahead of expectations, while sales was broadly in-line. The motor parts division in the North American aftermarket continued to make progress, while customer consolidation hindered sales in Western Europe.

Analyst Christopher Van Horn commented, “These may remain key themes during 2016, although we also will be looking for Asia Pacific to spur further upside.” The performance of the power train segment was the best it had been in 2015, despite near-zero organic growth.

Referring to Icahn’s offer, Van Horn said that there seemed to be “little competition” for the acquisition of these assets, since the valuation represents a premium of 41 percent to Friday’s close and the broad market sentiment around automotive continues to be “a bit challenged.”

Saying that Icahn was making a “fair offer,” the analyst pointed out that it assumes a conservative outlook, reflecting single-digit growth in sales and conservative margin expansion.