In new open letter, Carl Icahn says Apple’s share price should be at $216 today

Carl Icahn has issued the following letter to his Twitter followers regarding Apple, that begins:

Dear Twitter Followers:

We were pleased to hear Tim Cook yesterday state publicly: “By and large, my view is, for cash that we don’t need – with some level of buffer – we want to give it back [to shareholders]. It may come across that we are, but we’re not hoarders.” This position with respect to excess cash is great news for shareholders, and we look forward to the capital return program update in April, anticipating it will include a large increase to share repurchases.

On August 13, 2013, when Apple was trading at just $66.77, we originally notified our twitter followers of our conversations with Tim Cook and of our request that Apple take advantage of its excess liquidity by repurchasing its dramatically undervalued shares. Despite significant share appreciation over a relatively short timeframe to $122 per share, we believe the same opportunity exists for Apple today. More recently, skeptics (including bullish Wall Street analysts) questioned our financial model’s forecast for robust growth, disclosed in a letter to Tim Cook on October 9, 2014 in which we again urged Apple to increase share repurchases. Since then, we have gained further confidence in our thesis, increasing the forecasted EPS for FY 2015 in our model from $9.60 to $9.70, and now believe the market should value Apple at $216 per share. This is why we continue to own approximately 53 million shares worth $6.5 billion, and why we have not sold a single share.

… When we compare Apple’s P/E ratio to that of the S&P 500 index on the same basis (but without any tax adjustment to the S&P 500 forecasted FY2015 EPS or P/E), we find that the market continues to value Apple at a significantly discounted multiple of only 10x, compared to 17x for the S&P 500. We believe this P/E multiple discrepancy between Apple and the broad market index is totally irrational. It seems to us the market is somehow missing a very basic principle of valuation: when a company’s future earnings are expected to grow at a much faster rate than that of the S&P 500, the market should value that company at a higher P/E multiple. In FY 2016 and FY 2017 we forecast in our model EPS growth of over 20% per year, and if Apple introduces a TV in FY 2016 as we expect, this EPS growth accelerates to over 31% per year in our model. Because of this, we believe the market should value Apple at a P/E of at least 20x, which together with net cash of $22 per share, would value Apple shares today at $216 per share. This is not a future price target. $216 is what we think Apple is worth TODAY. Also, to the extent Apple introduces a TV in FY 2016 or FY 2017, we believe this 20x multiple is conservative.

Read more in the full letter here.


    1. He compares Apple’s share price to Google’s. If you do so, then Apple should cost $1.5 trillion.

      Of course, market traders would say now that Google costs twice more expensive per earned USD because they have kind of unlimited growth, while Apple has low growth unless it expands product line like it did just now with releasing “phablet”.

      Hence, speed of Apple’s growth is less predictable in the long run comparing to that of Google, which does not have to do a damn thing — just do not die and the advertisement money will flow in by themselves. No risks of product development, marketing mistakes, technical failures.

      Thus, stock market experts suggest, Apple has to be twice cheaper than Google on per earned USD basis. Icahn disputes that, he believes that Apple can grow very big further, too.

    2. he’s one of the few investors who appreciates BUN trajectories +- JAM as a coefficient of BACN on AAPL’s SAMN graph.

      you’d think all so-called “experts” would, right?!

  1. reality alert: the market is sham. the market does not value what the company is actually, it’s more about what the price of a share is worth. and that price is not based on any real metric – or reality for that matter. it is based on price manipulation and personal agendas. if someone had an agenda against apple they could easily rig the market against the stock and crash t to junk status. carl icaan is just full of hot air and parasite activist looking for other people’s money to take for his own.

    1. I have to agree the stock market is made up of a bunch of manipulating crooks who are only looking out for themselves. I certainly don’t understand the metrics used for Apple’s valuation and what Icahn says makes a lot of sense to me when it comes to valuing Apple. I think Apple shareholders are certainly being shortchanged if Apple is being valued unfavorably providing there are supposed to be set metrics of value.

      However, if the big Wall Street investors don’t wish to pay a higher premium for Apple stock then who am I to say they should. I might say it seems a bit unfair but I have no real reason to complain because I’ve done very well by owning Apple stock for fifteen years.

  2. Whether Apple’s leadership takes Carl Icahn’s current “advice” seriously or not, he is helping to move AAPL up. I have no problems with AAPL continuing to move up. 🙂

    And he is right about the value of Apple. Think of Apple as these three key product lines:

    Computing – Mac and services/accessories
    Mobile – iPhone, iPad, and iPod touch
    Media – iTunes Store, iPod (media player), and Apple TV

    If each of those portions of Apple are separate publicly-traded companies, the total value of those companies would probably exceed Apple at $200+ per share.

  3. And I should be 6′ 2″ with a seven figure salary, but I’m not and I don’t. Moral: You don’t always get what you ask for. There’s a song written in there somewher…

  4. All I know is that Icahn certainly did pile his money into Apple when the rest of the funds were pulling out of Apple and they all took a heavy beating by putting their money into Google, Amazon, Microsoft and Priceline. Icahn must have seen some fantastic gains from his Apple investment.

    I don’t know if Apple is worth a trillion dollars, but I think it’s worth at least slightly more than it is now. I’d like to at least see Apple’s P/E inline with Microsoft’s P/E so that’s my immediate goal.

  5. iCahn of all people should know the market runs on sentiment, not logic. Plus despite having *some* inside knowledge he bases his argument on future product speculation.

  6. Love him or hate him, his analysis is not bad. He makes some interesting assumptions, like adjusting Apple’s tax rate to 20% from 26%, because he believes Apple will never have to pay 26.3% since it’s including deferred taxes on foreign-income, which may be taxed at only 6% by Congress. He thinks AppleWatch will sell 20M units this year. And he applies a 20PE to his expectation of $9.60 in earnings this year. Adding in the cash, after taking out the 6% repatriation tax, he gets a price valuation of $216.

    To be honest, his assumptions, bar the TV, are not all that ridiculous. I’ve already stated that Apple is on target to earn $9 a share this year. I’ve only put a 16x multiple to get $144, but didn’t value the cash at all, another $20. Either way, Apple is killing it.

    1. Apple has already been dealing with the ludicrous US federal tax rate on foreign-income. It’s not waiting for Senator Carl Levin’s funeral. That’s what the bond debt is all about. Go into debt to work around lunatic taxes. Where’s my shoe hat?

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