Veteran corporate raider Carl Icahn has predicted that Apple shares will double to more than $200 (£124) each as he began his latest campaign to force the company into another stock buyback.
In a 4,500 word letter to Apple chief executive Tim Cook, Icahn implied that Apple should have a stock market valuation of $1.2tn as he claimed that the company should be trading at $203 per share.
Apple is already the world’s most valuable company with a stock market value of just under $591bn and share price of about $100.
But the billionaire investor said, in the letter entitled “Sale: Apple Shares at Half Price”, that “the market misunderstands” Apple and that it was “dramatically undervalued”.
Icahn, who owns nearly 1% of Apple, said it had a cash pile worth $133bn although analysts estimate that only a fraction of this cash is held in the US.
The letter began with praise of Cook, whom Icahn describes as an “ideal CEO for Apple”.
He continued: “It is truly a watershed moment, with Apple poised to take market share from Google (Android) in the premium device market as iPhone 6 becomes Apple’s flagship device among a growing collection of products and services that work together to form an increasingly dominant mobile ecosystem.”
He based his valuation on an analysis of Apple’s business prospects, making projections for the sale of iPhones and iPads and including launching a TV.
“Televisions are a centrepiece to the modern living room and thereby a promising gateway into the home for Apple’s growing ecosystem,” Icahn said, predicting an Apple television could be on the market in 2016.
He forecast that Apple would be able to sell 12m TVs for $1,500 a set in 2016. Apple has so far only launched an internet TV service.
Icahn drew an analogy between the iPhone 6 and a Mercedes but said that unlike the car the phone was “affordable for the mass market” as he made a comparison with the Galaxy S5 and Note 4.
“The choice between them is analogous to the choice between a Volkswagen over a Mercedes at the same price, and unlike a Mercedes, the $649 cost of an iPhone 6 is affordable for the mass market, equating to just $20 per month over a two-year period (including a $170 estimated resale value of the phone at the end of two years, excluding financing and taxes).”
Icahn had first admitted an interest in Apple last year when he began his campaign about the undervaluation of the company’s shares, calling for $50bn to be bought back. He had backed down in February although the company starting buying back shares in April and also split its shares, reducing the price in an attempt to tempt more investors to buy them.
The shares fell from $640m to just over $90 a result of the complex share split.
“You have said that the company likes to be ‘opportunistic’ when repurchasing shares and we appreciate that,” Icahn wrote in his latest letter.
“With this letter we simply hope to express to you that now is a very opportunistic time to do so.
“We ask you to present to the rest of the board our request for the company to make a tender offer, which would meaningfully accelerate and increase the magnitude of share repurchases.”
Set up 38 years ago by the late Steve Jobs, Apple was this week named the world’s most valuable brand by Interbrand in its best global brands annual report.
Icahn tried to play down scepticism about his motives by pledging not to sell any of his 53m shares. “To preemptively diffuse any cynical criticism that you may encounter with respect to our request, which might claim that we are requesting a tender offer with the intention of tendering our own shares, we hereby commit not to tender any of our shares if the company consummates any form of a tender offer at any price. We commit to this because we believe Apple remains dramatically undervalued,” Icahn said.
Apple said: “We always appreciate hearing from our shareholders.” It has returned $74bn to shareholders in two years and expects that to rise.
guardian.co.uk © Guardian News and Media Limited 2010