Icahn: Apple Stock Worth Nearly Double Current Prices (AAPL)

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Activist investor Carl Icahn wrote an open letter to Apple (AAPL) CEO Tim Cook today, urging him to put Apple’s $133 billion in cash to work.

carl icahn icahn enterprisesIcahn, who currently owns 53 million shares of AAPL stock, is notorious for pushing management around to make big changes once he’s taken a large position — usually with a touch of flair.

Yesterday on Twitter (TWTR), Icahn cryptically announced that he would be sending an “interesting” open letter to Tim Cook today. Most people either thought Icahn would press for Apple to increase its dividend, which currently sits at $1.88 annually (yielding 1.8%), or encourage a buyback.

It appears Icahn is after the latter.

Icahn’s Theory on AAPL Stock

Carl Icahn has lobbied Apple fiercely in the past to buy to engage in stock buybacks, and he argued the point vehemently this morning as well.

Although Icahn didn’t shy away from delving into Apple’s many products and services and how they make AAPL one of the most profitable in the world, Icahn’s argument at its core hinges on just two simple premises:

 “(1) given the earnings growth we forecast for Apple, we continue to think that the market misunderstands and dramatically undervalues Apple and (2) the excess liquidity the company continues to hold on its balance sheet affords the company an amazing opportunity to take further advantage of this valuation disconnect by accelerating share repurchases.”

Citing AAPL’s “increasingly dominant mobile ecosystem,” the famed activist investor says he thinks this ecosystem gives Apple an “advantaged position over Google (GOOG), the company’s only real competitor.”

Outlining some quick math based on earnings estimates and a fair AAPL stock price-to-earnings ratio, Icahn estimates the fair value of Apple stock at $203 per share — more than twice where they opened Thursday trading.

Icahn is coming off a big win with his eBay (EBAY) investment. After a few setbacks, Icahn finally yielded what he wanted: an eBay spinoff of PayPal. When eBay made the announcement last week, Icahn’s shares were thought to have appreciated by as much as $120 million in a single day.

Icahn’s push for an AAPL tender offer is self-motivated, sure, but it’s not totally crazy. Apple stock isn’t exactly trading at lofty multiples, and I’m sure shareholders wouldn’t argue with the company’s $133 billion in cash being put somewhere other than the bank.

So far, the corporate line (as written from Apple to CNBC) stands here:

“(Apple) always appreciate(s) hearing from our shareholders. Since 2013 we’ve been aggressively executing the largest capital return program in corporate history. As we’ve said before, we will review the program annually and take into account the input from all of our shareholders.”

Obviously Apple wasn’t going to make a move today. But we’ll see sooner than later whether Cook plans to act on Icahn’s call.

Don’t be surprised if AAPL starts repurchasing shares again soon.

As of this writing, John Divine was long AAPL, GOOG and GOOGL stock. You can follow him on Twitter at @divinebizkid.

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Article printed from InvestorPlace Media, https://investorplace.com/2014/10/icahn-aapl-stock-buyback-tender-offer/.

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