Carl Icahn Posts Another Open Letter to Tim Cook, Apple Responds

Carl Icahn has posted another open letter to Tim Cook in which he valuates Apple's stock at double its current value and asks the company to accelerate and increase the magnitude of its share repurchases.

Icahn now owns approximately 53 million shares of AAPL and is predicting significant revenue and earnings per share growth of 25% and 44% respectively in 2015. He has says that Apple's stock should be worth $203/share.

"This strong competitive position and earnings growth compels us to remind you that Apple, adjusting for net cash, currently sells at a P/E (price to earnings per share ratio) of only 8x our FY 2015 forecast, a significantly lower P/E than a broad market index, the S&P 500, which trades today at a P/E of 15x FY 2015 consensus. In contrast to the S&P 500’s slower growth, we expect Apple to grow its EPS by 30% in each of FY 2016 and FY 2017. Assuming these growth characteristics for FY 2016 and FY 2017, we see Apple’s P/E of just 8x our FY 2015 forecast as both irrational and transient in nature, especially since many actively managed mutual funds remain underweight Apple in their portfolios. Our forecasted growth for FY 2016 and FY 2017 more than adequately justifies using a P/E multiple of 19x our FY 2015 forecast, which along with net cash values Apple at $203 per share today."


As usual, Icahn is pushing for Apple to increase it share repurchases.

"Therefore, given the persistently excessive liquidity of $133 billion net cash on Apple’s balance sheet, 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. We thank you for being receptive to us the last time we requested an increase in share repurchases, and we thank you in advance now for any influence you may choose to have communicating to the rest of the Board the degree to which a tender offer would have a positive impact on an EPS basis for all shareholders. 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. And we think you and the Board agree. If you did not, you would not continue to repurchase shares under the existing authorization. You have said before that the company likes to be “opportunistic” when repurchasing shares and we appreciate that. With this letter we simply hope to express to you that now is a very opportunistic time to do so. We think a tender offer is simply a good method of conducting a large repurchase in an expedited timeframe, but the exact method and the exact size is not the key issue for us. We are simply asking you to help us convince the board to repurchase a lot more, and sooner. We feel compelled to do so because we forecast such impressive earnings growth over the next few years, and therefore we believe Apple is dramatically undervalued in today’s market, and the more shares repurchased now, the more each remaining shareholder will benefit from that earnings growth."

Icahn goes on to offer analysis on the iPhone, iPad and Mac, 'iTunes, Software and Services, Accessories, and iPod', Apple Watch, HomeKit and HealthKit, Apple Pay, and even an Ultra HD Television. You can read the full letter at the link below.

Apple has responded to the letter with this statement to CNBC.


"We always appreciate hearing from our shareholders. Since 2013 we've been aggressively executing the largest capital return program in corporate history. As we've said before, we will review the program annually and take into account the input from all of our shareholders."

Read More