“Hedge fund billionaire Carl Icahn took a ‘large’ position in Apple Inc. shares and told Reuters on Tuesday that he believes Apple should trade at $700 a share,” Edwin Chan and Jennifer Ablan report for Reuters.
“The billionaire with a reputation for pushing aggressive corporate change said he had a ‘nice conversation’ with Cook on Tuesday and they plan to speak again soon,” Chan and Ablan report. “News of Icahn’s interest in Apple pushed the stock up 4.75 percent to $489.57 on the Nasdaq. Icahn said in a phone interview that Apple has the ability to do a $150 billion buyback now by borrowing funds at 3 percent. ‘If Apple does this now and earnings increase at only 10 percent, the stock – even keeping the same multiple currently should trade at $700 a share,’ he told Reuters. Apple has ‘huge borrowing power, little relative debt and trades at a low multiple,’ Icahn added.”
Chan and Ablan report, “Icahn called the iPhone maker ‘extremely undervalued’ in one of two tweets about Apple on Tuesday.”
Read more in the full article here.
Ian Sherr and David Benoit report for The Wall Street Journal, “The activist investor didn’t disclose the size of his stake. A person familiar with the position put his investment at over $1 billion.”
“Mr. Icahn’s thesis rests on Apple borrowing at about a 3% interest rate and buying back shares right now, likely at around $525 a piece,” Sherr and Benoit report. “That would send shares to $625, Mr. Icahn says, without taking into account any earnings growth.”
“Mr. Icahn said in the interview Tuesday that he made the investment on the advice of his son Brett Icahn and investment partner David Schechter, who have been looking at the technology sector for Icahn Enterprises,” Sherr and Benoit report. “Those two also led Mr. Icahn’s successful investment in video provider Netflix Inc. where they have made $1 billion in less than a year. They pitched Mr. Icahn on Apple’s solid cash position and its ability to borrow with ease to fund a massive stock buyback, Mr. Icahn said.”
Sherr and Benoit report, “They also are bullish on Apple’s ability to increase earnings, and expressed enthusiasm over the possibility that Apple’s coming products, such as the much-reported watch and television, will drive sales. Mr. Icahn says though his son and investment partners are more familiar with technology, he likes playing chess on his iPad.”
Read more in the full article here.
[Thanks to MacDailyNews Reader “Arline M.” for the heads up.]
Related articles:
Carl Icahn spells the end of an era at Apple; this is the end for the Apple that you knew and loved – August 13, 2013
Carl Icahn reveals large Apple position, reportedly over $1 billion; wants to see Apple increase stock buybacks – August 13, 2013
Apple stock goes vertical: The Carl Icahn effect – August 13, 2013
Apple is a $1000 stock and has been for a long time. It will trade at $700 at least this time next year.
…If not sooner.
I am so tired of people saying AAPL is a $1000 stock. Put your money where your mouth is and buy my AAPL stock for $1000 if you really believe it is worth it.
The stock is worth what people will buy it at. PERIOD.
You are a total idiot. Why would anyne buy ‘your’ stock grasshopper,today, when they have bought throught the years at much lower prices with the same reckoning – Apple is a $1000 stock? My money is always where my mouth is and I’ve been quite happy with my own reckoning.
If you own AAPL and don’t know that it’s a $1000 stock, you really don’t have a clue.
OK then, if you won’t buy my AAPL stock at $1000, who will? You are right when you say “You are a total idiot.” and ” you really don’t have a clue.” The problem is that it is very difficult for a person to know when they don’t know anything. Why don’t you enrol in a basic stock trading course and find out what you don’t know?
Wipe the milk off your lips sunny boy
Why buy today for $1000 when you can buy today for $498 and make the difference in profit when it gets there dummy?
You actually get my point. If you were to try to sell those same stocks for $1000 tomorrow, you likely would get no buyers for a very long time, hence the value today is less than $500 and no more. No one will pay $1000 for any AAPL stock for a very long time. That is how the market works.
“you likely would get no buyers for a very long time”
What he said:
“Apple is a $1000 stock and has been for a long time. It will trade at $700 at least this time next year, if not sooner”
Are you daft?
i bought my Apple stock for $12 — and then it split!
I say this in all seriousness: well done. I hope you bought a sizable chunk at that price.
You lucky SOP. I bought them 13,.50 and then they split. 😛
What year was it when AAPL at $12?.
15x earnings would be a fair valuation for AAPL right now. That would put it at about $600.
Apple borrows at 3%. Avoids paying a dividend of 2.5%. Then deducts the interest payments off of the tax return. Therefore Apple pays almost nothing to buy back the shares.
And this is why the entire system is screwed up — because financial analysts can sit back and say it make sense TO THE COMPANY to borrow money.
It makes ABSOLUTELY NO SENSE TO APPLE. Sure, it makes sense to stockholders — especially stockholders who want to make a quick buck, but it makes zero sense to Apple to borrow money for no other purpose than to make stockholders richer.
Apple’s job (and the officers and directors job) is to make Apple as great as it can be and as profitable as it can be. Absolutely nothing more.
It is absolutely NOT Apple’s job to borrow money just to make stockholders richer.
The system is screwed up when people think otherwise.
Apple is a public company, and therefore shareholders matter.
A buyback will relieve Apple of some of this external pressure so that they can do what they want.
As long as Apple can borrow at super low rates, it allows Apple to do something really big, something that they couldn’t do entirely on their own.
This is about playing defense, and not about lining people’s pockets.
Yes and if apple buys more of their own stock they could become their largest shareholder and then have the power to do what’s right and ignore Wall Street. I’m all for it. More power to apple.
Also notice the stock manipulation: Icahn buys lots of apple stock at a low price and then “announces” it’s a $700 stock. Now for everyone else it’s a “good” stock now (as opposed to last week BEFORE Icahn bought it when he said it sucked). We all now buy and drive the price up, Icahn later dumps the stock with another billion in profit. The stock goes back down because these large investors drive the market. We lose money once again. It’s all a game and its a great way to flow money from little people like us into billionaires pockets.
Why all the games, why don’t we each just write Icahn a check for $1000 and be done with it?
Let the games begin!
Also…
If Apple does announce that it will do a $150 Billion stock buyback the stock price will go way up.
This causes the dividend yield percent to go down (at $700 it is not 2.5% is more like 1.6% unless Apple increases the dividend proportionally, which is *extremely* doubtful). However, the borrowing rate to buy that stock stays the same. Thus the differential is not 3% minus 2.5% for a difference of 0.5%. It’s more like 3% minus 1.6% for a difference of 1.4%. Apple’s “cost” just went from 0.5% to 1.4% or an increase by a factor of almost three!
All this to put $150 billion cash into the pockets of people like Carl Icahn? It’s just stupid.
Regarding:
“This causes the dividend yield percent to go down (at $700 it is not 2.5% is more like 1.6% unless Apple increases the dividend proportionally, which is *extremely* doubtful).”
1st: What you are forgetting is that Apple did not pay $700 to buy back the stock. They have purchased their recent shares at let’s say $424 which makes their dividend avoidance higher than the 2.5% I have been talking about.
2nd: if Apples buys at let’s say $424 per share and the stock goes to $700 as you have proposed, then Apple could reissue those same shares, selling them for that $700 and realize a profit of $376 per share.
My point is that Apple has played the ignorance of the analyst who have been demanding that Apple give back money to the shareholders. And those dumb bastards think Apple is doing so when in fact Apple is going to make a shit load of money by playing to the ignorance of those analyst and the public at large.
“profit of $276 per share.” Not “profit of $376 per share.”
Sorry.
Your second point is not valid. Apple will not reissue the shares for a profit. Apple will reissue the shares for employee benefits programs. Apple has no reason to attempt to raise cash by issuing new shares to the public.
As far as apple’s current strategy under Tim Cook, I like it. It is logical and stabilized AAPL and took some of the Wall Street heat off of the company. As long as Apple can borrow at very low rates and make a higher return than its total borrowing costs, I am in favor of a reasonable degree of leveraging.
But don’t get too wrapped up in your cleverness with respect to interest and dividends. Interest is paid to bond holders. Dividends are paid to shareholders (owners of the company). The money used for interest payments is shareholder money that is going to bond investors. The money that is used for dividends is shareholder money that is being distributed back to the shareholders. That is not the same thing at all, if you are a shareholder. Of course, if the arrangement ends up inflating the stock price substantially, then the shareholder still comes out ahead.
Regarding: “Apple will not reissue the shares for a profit.”
Response: I never said that Apple would do anything, I said that “Apple could reissue those same shares”. I don’t know and you don’t know what Apple will do. As far as using those retired shares for the employees – Tim Cook, many months ago, stated that they would start buying shares on the open market for employees as a separate program.
Regarding: “But don’t get too wrapped up in your cleverness with respect to interest and dividends. Interest is paid to bond holders. Dividends are paid to shareholders (owners of the company). The money used for interest payments is shareholder money that is going to bond investors. The money that is used for dividends is shareholder money that is being distributed back to the shareholders.”
Response: What is your point? The retired shares will not require a dividend payment. The interest payment is a deductible expense. On retired shares Apple does not pay a dividend which has no tax effect and makes interest payments that are deductible.
Regarding: “That is not the same thing at all, if you are a shareholder.
Response: Yes, I am a shareholder and have been since 2007.
If they borrow $100B to buy say 190M shares @3% they will save about $98M. Interest @ 3% Less Tax Savings due to Interest as a deductible expense is $98M less then Dividend $12.20 payable on 190M shares. Also remember EPS will be higher because outstanding shares will be reduced by another 190M shares.
GO FOR APPLE!!!
That doesn’t make any sense. There is no correlation between the interest rate on their debt and what percentage of the share price the dividend is. And the interest rate on the debt is low but they do have to pay back the principal eventually. The only money they are saving is the taxes on repatriating cash.
What do yoi mean avoids paying a dividend?
Apple retires the shares and therefore there is no one to pay the divided to.
When Apple buys shares of AAPL those shares are “retired” and disappear. See here for more info:
http://www.asymco.com/2013/07/25/apples-biggest-acquisition/
So, every share Apple buys and retires is a share it no longer has to pay a dividend on. The deal isn’t quite is good as “Apple pays almost nothing to buy back the shares”, but it is a nice benefit anyway.
If Apple avoids the 2.5% dividend and then deducts the interest payment from their taxes (let us assume their tax rate in the US is in excess of 20%, which I think is closer to 23%) they are really not paying that much to buy back the shares. In addition, if Apple raises the dividend rate later, it becomes even more lucrative. Also, if Apple buys the stock at, lets say $450 a share and later it goes to, lets say $500, Apple could reissue those shares and realize a $50 per share profit. Again, Apple is paying either next to nothing to buy back their shares.
An d if the shares are re-issued, then Apple has to pay the 2.5% dividend again … that is a cost
That is true but not correct.
It is true that they start paying the dividend which is a cost. What is not correct is that you make it sound negative which it is not. They pay back the $450, stop paying the interest of 3% and pocket $50 per share. That is a good thing, not a bad one.
Carl Icahn seems to have a lot to say about Apple today.
Icahn is a greedy a** wipe who would gladly wreck a great company so he can make an extra billion.
He could care less about the average person being able to buy great products.
His money is all he thinks about.
Icahn has wrecked every company he has gotten his greedy hands on. He’s got what, 1 %, let him scream and pay no attention to him Tim.
Joe- whatever stock Apple buys back is retired so no dividend is paid on the shares bought back
Apparently this “all new Apple” that’s not the Apple we know and love has little or nothing to do with building insanely great products and everything to do with being a piggy bank experiment for hedge fund creeps.
Just sayin…
Folks, take a chill pill. The engineers who build great products at Apple are not the financial folks who would be evaluating the pros/cons of a stock buy back. And can you really assert that those engineers won’t be happier at Apple when the stock is trading up $200 from today’s levels? Trust Tim and the board!
…and with a higher stock price, Apple is more likely to retain the brilliant engineers with options!
where else are the brilliant engineers going to work? Dell?
They’ll be welcomed at Google, who need neuron fodder to throw at the problems of matter transmutation and Hari Seldon psychohistory. After which Google can take over the world, but did anyone ever seriously believe in retaining their personal freedom forever? Just let it happen, with hands folded.
Well, obviously, AAPL can be $700 or even $7000, if Apple buys back enough shares. One share of AAPL represents a very small portion of Apple. When Apple buys back a share, that share is off the market, so each remaining share on the market represents a greater portion of Apple.
“In theory,” if Apple was able to buy back every share of AAPL except one, that one remaining share would be worth about $450 billion (at today’s valuation for Apple). 🙂
But I agree with Carl Icahn… I would rather have Apple use its “excess” cash to buy back more shares and help AAPL go up, rather than increase the dividend paid per share.
+1
This is not G
lol
I’ll give ♥♥♥♥♥♥♥♥♥♥♥♥♥♥♥♥♥♥♥♥♥
★★★★★★★★★★★★★★★★★★★
Just waiting for all those ‘analysts’ to start raising their price targets starting tomorrow.
So somewhere between the re-purchase of shares, which has AAPL taking on debt, Carl and hedgy pals send AAPL through the roof to 900+ and somehow raid apple for cash when it cannot complete the repurchase. D’Oh!
Seems like everyone posting today has it all figured out, and is poised to profit like never before, or has no actual irons in the fire but likes to talk it up. I have no problem with any of that, as I don’t frequent these alleys for investment advice in the first place. What I do harvest is human interest stories. Everyone has one, bar none.
There’s a million stories in the Naked City.
I am going to load up 370 shares tonight .
But but but, Law Raymond, I thought you bought AAPL when it was @ 385?.
What I want ( also what fund managers think ) is buying Apple when Apple closed over $471 which is its 200 days moving average . That means it is highly possible Apple will continue rally .
Buying at $385 or $ 285 is no difference as aapl can still drop even u buy at $285 if contained rally is not confirmed .
I mean aapl can still drop if continued rally not confirmed . U think buying at $385 is good but I think buying confirmed rally is better than u buy at cheap .
Last night rally firmly confirmed Aapl will continue rally .
I rather buying low then selling high, I should have kept AAPL, unfortunately I sold them all at 468 on Monday, one day before Carl ICaln Tweeting. Crying a river!.
Me too , but I will load it up tonight again .
Ok, that’s an idiotic suggestion… Buy back stock with share holder money. I think the should scrapp the current 60 billion useless share but back program an invest in growth, helping out suppliers etc.
What if Carl and Tim really talk about paying of Netflix huge
debt that will cause Brett’s ( Carl’s son) to skyrocket in value
and work a reasonable Apple buyback deal also causing Apple
stock to go up at least %15-20 ?