Apple has US$133 billion in cash and big-name investor Carl Icahn thinks it's time for the iPhone and iPad maker to use some of that money to buy back more stock. In an open letter to Apple CEO Tim Cook, Mr. Icahn said he thinks the company's stock is currently sitting at about half its value, and that's an opportunity not to be passed up.
Mr. Icahn is calling for a tender offer to "accelerate and increase the magnitude of share repurchases." His own estimates put Apple's shares at $203 in fiscal 2017. Apple already has a stock repurchase program in place, and Mr. Icahn has pushed for a more agressive program in the past.
"We believe Apple remains dramatically undervalued. And we think you and the Board agree. If you did not, you would not continue to repurchase shares under the existing authorization," Mr. Icahn said in his letter. "You have said before that the company likes to be 'opportunistic' when repurchasing shares and we appreciate that. With this letter we simply hope to express to you that now is a very opportunistic time to do so."
Mr. Icahn has been pro-Apple for some time and has purchased over $4 billion in the company's stock, making him one of the company's largest single shareholders. He doesn't control Apple, but he is in a position where company executives and the board of directors aren't ignoring what he says.
He sees Google as Apple's only true competitor in the smartphone space, and the Internet search giant is set to lose marketshare because it's fragmented and flawed. Samsung isn't in a position to compete against the iPhone 6 and iPhone 6 Plus with its Galaxy S5 and Note 4, either.
"The choice between them is analogous to the choice between a Volkswagen over a Mercedes at the same price," Mr. Icahn said. "And unlike a Mercedes, the $649 cost of an iPhone 6 is affordable for the mass market."
He goes on to say Apple Watch will be a significant growth point for Apple over the next three years with sales hitting 20 million units in fiscal 2105, 45 million in 2016, and 72.5 million in 2017. With a $349 starting price, Apple could see some nice revenue from Apple Watch should sales fall in line with Mr. Icahn's expectations.
His expectations, while optimistic, seem reasonable until the letter started talking about televisions. Mr. Icahn thinks Apple is looking at introducing and UltraHD television in fiscal 2016 with sales at 12 million units in 2016, and 25 million in 2017. He says the mythical Apple television will sell for around $1,500.
Regardless of what Mr. Icahn has right or wrong in his predictions, he's a savvy investor and he knows exactly what he's doing. An open letter to Tim Cook is really a public show to help drum up support for Mr. Icahn's cause, which is to drive up Apple's stock value through company share repurchases. Other investors will benefit from his efforts, but the bottom line is that this is all about making more money for Carl Icahn.
Apple is currently trading at $100.88, up 0.08 (0.08%).