Activist investor Carl Icahn has embarked on a new campaign to encourage Apple to increase returns to shareholders by arguing the iPhone maker’s shares should be trading at nearly double their current price – $240 each, rather than $128.
On this basis, the Californian company would be worth about $1.5tn, more than seven times as valuable as Shell, one of Britain’s biggest listed companies.
“Apple is poised to enter and in our view dominate two new categories (the television next year and the automobile by 2020) with a combined addressable market of $2.2tn, a view investors don’t appear to factor into their valuation at all,” Icahn wrote in the letter to Tim Cook.
The corporate raider has previously sent public letters to Cook. In October 2014, he argued the shares should double in value – that time to $203 each – as he encouraged the company to buy back shares from investors. As one of the 10 biggest shareholders in Apple, he upped his forecast in February to $216 a share.
In his latest letter, Icahn wrote: “We are pleased that Apple has directionally followed our advice and repurchased $80bn of its shares [yielding the company’s shareholders an excellent return], but the company’s enormous net cash position continues to grow while the company’s shares are still dramatically undervalued.
“With Apple’s shares trading for just $128.77 per share versus our valuation of $240 per share, now is the time for a much larger buyback. We appreciate that the board just increased the share repurchase authorisation by $50bn, and that it continues to prioritise share repurchases over dividends (as it should).”
He had outlined the importance of Apple TV in his previous letter and again highlighted the potential market value of this business as well as the cars. “We believe the rumours that Apple will introduce an Apple-branded car by 2020, and we believe it is no coincidence that many believe visibility on autonomous driving will gain material traction by then,” Icahn said.
Icahn is enthusiastic about the prospects for Apple TV as he said people spent 25% of their free time watching television. “We view TV’s role in the living room as a strategically compelling bolt-on to the Apple ecosystem,” he said, arguing that a high-definition set could be followed by pay-TV channels
The letter cited products such as a larger screen iPad, the Apple Watch, Apple Pay, Homekit, Healthkit and Beats Music as justifying his higher valuation.
In its results in April, Apple said it had ended the quarter with $193.5bn in cash, though much of this is held outside the US and would incur a large tax bill if repatriated. It added another $50bn to its share buyback programme, taking the total being returned to shareholders to $200bn by March 2017.
Icahn’s letter was published as an appeal court issued a ruling which could reduce the damages Samsung must pay to Apple for copying some features of the iPhone.
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