“Carl Icahn’s call for Apple to buy back more shares using a tender offer was met with skepticism by many Wall Street analysts, who questioned the activist investor’s assumptions about the company’s growth rate and the effectiveness of another big buyback,” Cadie Thompson and Josh Lipton report for CNBC. “‘There are other uses of domestic cash besides big tender offers. It’s already proven itself shareholder friendly and it doesn’t need to get painted into a corner by some flamboyant grandstanding,’ said Alex Gauna of JMP Securities.”
“Icahn’s latest buyback demand is based partially on the premise that the company’s sales will grow 80 percent over the next three years–substantially higher than recent growth–an assumption Gauna dismisses,” Thompson and Lipton report. “‘We don’t know enough about new revenue streams to say that say Apple is going to meet those targets,’ Gauna said.”
“While some analysts agree with Icahn that Apple could buy back more stock, other questioned both the timing and the effectiveness of Icahn’s communications strategy,” Thompson and Lipton report. “‘I don’t disagree with Icahn,’ said Oppenheimer’s Andrew Uerkwitz. ‘They have a ton of cash. The stock is undervalued. But Apple will not listen to him. He owns one percent of the company. This feels like an Icahn strategy to keep the momentum going on in the stock.’ George Young, manager of the Villere Balanced Fund (which owns Apple as one of its biggest holdings), thinks Icahn is ‘overly optimistic’ on the likelihood of a buyback doubling the stock’s value.”
Read more in the full article here.
MacDailyNews Note: Apple’s has issued a blessedly succinct response to Icahn’s tome:
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Jim Cramer: Carl Icahn is ‘assaulting’ Apple – October 9, 2014
Icahn: iPhone 6/Plus to hurt Android, Apple severely undervalued, increased buybacks urged – October 9, 2014
But all of those analysts are making the assumption that Apple needs to double profits in order to double its share price. That’s true only if one assumes that Apple’s current P/E of about 16 is reasonable. It’s roughly the same as Intel’s, and what do you think Intel’s chances of growth matching Apple’s are? Likewise, Microsoft is at 17.43 P/E and what are its prospects for the future versus Apple’s? A few years ago a P/E of 40 was normal for Apple. Right now it should be more like 25, and at 25 times earnings Apple’s share price would $155. That makes a share price prediction of $203 sound a lot more reasonable.
I’d love to know why Wall Street feels Microsoft deserves a higher multiplier than Apple. I don’t see what they’re basing this on. Surface sales were a disaster (now rumors of discontinuing them). Windows 8 sales were basically flat. Nokia Windows Phones are not gaining any significant market share and even in places where they are, profits are low and with Android One coming, competition will be much tougher.
These analysts continue to say Apple can’t grow revenue much, but what makes them think Microsoft can grow revenue faster than Apple. There’s no indication of that at this point. Windows 10 could be a crapshoot because there’s no reason for users to suddenly upgrade if they’re happy with what they already have in Windows 7 or 8.1. Apple has a bunch of new products on the horizon and they have a better chance of selling more than anything Microsoft can offer. Microsoft being seen as having a better future than Apple makes no sense at all. Apple should have at least a slightly higher P/E than Microsoft. Apple shareholders are simply being dissed by Wall Street. A year or so back analysts were saying how Windows Phone was going to tear Apple another a**hole and so far it hasn’t done any damage to Apple’s iPhone market share, at all.
I’m not asking for a doubling in share price for Apple but in my estimation Apple should be worth at least $110 at this point in time if Microsoft is worth $46 a share based on future prospects. Nokia is a boat anchor for Microsoft. I doubt anyone wants or needs a third mobile OS even if Windows Phone OS is decent. If it’s that large market cap that’s holding Apple’s share price down, then I have nothing to say. Apart from a psychological aspect, I don’t see why it makes a difference whether Apple is worth $600 billion or $700 billion. Hey, Microsoft got that high and it must have had a P/E of 50 or so. That was a gift.
Icahn’s an anus. If he wants to run a company, he should get himself hired somewhere. Otherwise, he should STFU.
Apple’s response to Icahn: blow chunks.
The cynic in me keeps whispering that Mr Icahn wants Apple to buy enough stock that his 53,000,000 shares, when partnered with the shares of some like-minded corporate raiders, will buy him a seat on the board of directors. I surely hope Mr Cook sees through this hypocrisy.
Don’t worry. It’s just Carl being Carl.
I would like to know how many call options george young and company have sold and now need to neutralize icahn’s shill of apple. Maybe Icahn has sold puts or bought calls, but definitely some other folks are nervous about the calls they have sold and actually losing their apple positions.
As always, the truth lies somewhere between the two stated positions. AAPL should be valued higher than it currently is, but it’s hard to see that $200 is currently feasible within the sort of timescale that Icahn suggests. Wall Street certainly appears to be applying different principles when it comes to valuing AAPL compared, for instance to MSFT.
Apple’s response to Icahn is spot on. They have been aggressively buying back shares and the process remains under review in order to take advantage of trading opportunities. Meanwhile the increased dividend payments should please investors.
There are many reasons to expect further gains for AAPL in the near future, but Wall Street wouldn’t let AAPL jump dramatically in the way that Icahn mentions.