As you’ve likely heard already, shares of Apple (NASDAQ:AAPL) got a nice Monday morning bump thanks to some kind words from its friendly uncle Carl Icahn.
Shares gained more than 1%, piggybacking a positive day for the broader markets, after Icahn wrote an open letter applauding the prospects of AAPL stock and urging even more buybacks from the tech darling.
Take a look:
- Where AAPL stock has been: For context, shares of Apple stock have already been chugging steadily higher this year. Before today’s boost, AAPL stock had already notched 17% gains since the start of 2015 — blowing away the broader Dow Jones Industrial Average’s 2.5% climb.
- Apple stock buybacks so far: Apple stock hasn’t been sitting still, and neither has Apple’s board. The company, which already had a monster buyback gameplan, announced a head-turning $50 billion increase back in April. But, as he states in his open letter to Tim Cook, Icahn wants more.
- Icahn’s stake: As of the end of Q1, Carl Icahn’s hedge fund Icahn Associates was the seventh-largest shareholder of Apple stock, hoarding nearly 53 million shares.
- Why Icahn wants more buybacks: Carl Icahn is wildly optimistic about the prospects of Apple, writing that the company will eventually dominate the “new” TV market next year, in addition to the automobile market. This will happen by 2020, he says, and those two markets will have a combined addressable market of $2.2 trillion, no big deal.
- Turn on the TV: For more detail on this new TV market, Icahn writes: “Excluding advertising, the addressable market for television is approximately $575 billion, which is larger than the smartphone market. Also, given that people spend an average of 12% of the day watching TV (equating to 25% of their free time), we view television’s role in the living room as a strategically compelling bolt-on to the Apple ecosystem.”
- Start your engines: For more detail on the car market, Icahn writes: “At $1.6 trillion, the enormous addressable market for new cars is approximately four times the size of the smartphone market. It’s estimated that people spend an average of 1 hour every day traveling, mostly in cars, but not everyone drives, implying that the average time that daily commuters spend in a car is much higher.”
- What that means: Add it all up, and Icahn says that AAPL stock is actually worth $240 per share vs. a current pricetag just over $130, even after today’s gains, thanks to the potential of TV and cars that “investors don’t appear to factor into their valuation at all.”
- What that really means: If everything Icahn says is accurate, Apple stock is a freaking bargain. According to Icahn’s math, Apple should grow earnings by 40% this year … and has a P/E ratio of 10.9. For comparison’s sake, the S&P 500 index sports a P/E ratio of 17.4x — “a 60% premium valuation to Apple,” as Icahn also points out.
- Why Icahn cares: Wondering why Icahn is bothering to do all this back-of-the-napkin math to help AAPL stock reach its full potential? It’s because he is an activist investor, and the “Shareholders’ Square Table” where the open letter published is “a platform from which we can unite and fight for our rights as shareholders and steer towards the goal of real corporate democracy.”
- Why Icahn really cares: Did I mention that Icahn’s hedge fund owns almost 53 million shares of AAPL stock? A little back-of-the-napkin math of my own: With the meager 84% gains he’s call for, those shares would be worth more than $12 billion if that $240 pricetag becomes a reality.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
