Icahn Values Apple At US$240 Per Share, Calls For Larger Buyback
In arriving at a valuation of US$240 per share (with Apple shares currently trading for around US$128.77), Icahn states he believes Apple is set for further expansion and success in two new categories – television and automobiles.
“After reflecting upon Apple’s tremendous success, we now believe Apple shares are worth $240 today,” Icahn writes in the open letter to Apple Chief Executive Officer Tim Cook.
“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 $2.2 trillion, a view investors don’t appear to factor into their valuation at all.”
Reports emerged earlier in the year that Apple is looking to enter the car business, with speculation that Apple has an electrical vehicle in development.
Icahn last year also wrote to Apple, arguing that the tech giant was undervalued, valuing Apple at US$203 per share, which was around double its price at the time.
In his most recent letter, Icahn praises Apple for repurchasing US$80 billion of its shares and calls for a further buyback.
“We are pleased that Apple has directionally followed our advice and repurchased $80 billion 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,” Icahn writes.
“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.”
While Icahn notes that existing product lines, including the Apple Watch, Apple Pay, HomeKit, HealthKit and Beats Music, represent “a tremendous opportunity”, he points to Apple’s increasing spend in research and development as an indicator of further growth ahead.
“It may be difficult for some to fathom (only because Apple is already the largest company in the world), but Apple is very much a long-term growth story from our perspective, which is exactly why we believe the company’s shares should trade at a premium multiple to the S&P 500, as opposed to the S&P 500 trading at a 60% premium to Apple,” Icahn writes.
“While we respect and admire Apple’s predilection for secrecy, the company’s aggressive increases in R&D spending (and some of the more well-supported rumours) have bolstered our confidence that Apple will enter two new product categories: television and cars.”