Carl Icahn Urges Apple To Buy Back More Shares

(RTTNews) - Activist investor Carl Icahn on Thursday urged technology giant Apple Inc. (AAPL) to make a tender offer for the repurchase of its shares, citing the liquidity of $133 billion net cash on Apple's balance sheet. He noted that Apple was "dramatically undervalued in today's market."

In his letter to Cook, Icahn said Thursday that the intention of his letter was to communicate two things. Icahn noted that the market "misunderstands and dramatically undervalues" Apple despite strong earnings growth forecast.

In addition, Icahn said that the excessive liquidity held by Apple on its balance sheet afforded the company an amazing opportunity to take advantage of the valuation disconnect by accelerating share repurchases.

Icahn made it clear that his letter to Cook was not intended as a criticism of his role as CEO, nor intended to be critical of anything being done by the company's management team from an operational perspective of Apple.

"As a large Apple shareholder with approximately 53 million shares, we applaud you and the rest of management, especially in light of recent launches and announcements which further validate our view that you are the ideal CEO for Apple," Icahn said in his letter.

Icahn noted that Apple is poised to take market share from Google's Android in the premium device market, as the iPhone 6 becomes Apple's flagship device.

He said that the advantaged position held by Apple over Google Inc. (GOOG, GOOGL), the company's only real competitor, justifies his forecasts for revenue and earnings per share growth of 25 percent and 44 percent respectively for fiscal year 2015.

Further, Icahn said he expects Apple to grow its earnings per share by 30 percent in each of fiscal years 2016 and 2017.

"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. Described in more detail below, these factors combine to reflect a massive undervaluation of Apple in today's market, which we believe will not last for long," Icahn said.

Icahn said that Apple's share should currently be trading at $203 per share, significantly higher than Wednesday's closing stock price of $100.80.

He urged Cook to present to the rest of Apple's board of directors his request for the company to make a tender offer that would "meaningfully accelerate and increase the magnitude of share repurchases".

Further, Icahn said that to diffuse any criticism that he has requested a tender offer with the intention of tendering his own shares, he has committed not to tender any of his shares if Apple consummates a tender offer at any price.

Icahn noted that with 55 percent of the company's net sales, the iPhone is Apple's largest product platform and that consumers have responded with "unparalleled enthusiasm" to the iPhone 6 or 6 Plus. He added that he expects Apple to take significant market share in China at the time of that country's 4G rollout.

Further, Icahn said he believes that the iPad will reaccelerate growth in 2015 after a disappointing fiscal 2014, if Apple offers a larger screen device and also improves the offering of its 7.9" iPad Mini and its 9.7" iPad Air.

Icahn added that the segment of iTunes, Software and Services is not only important to Apple's ecosystem in terms of driving sales of its products, but also in terms of its own long-term revenue growth.

Further, Icahn said that moving forward, he expects the impact of the acquisition of Beats and accessory growth to more than offset the continued decline of iPod, which is already relatively immaterial to net sales.

The activist investor also said he expects the Apple Watch, which will be launched early next calendar year, to have a significant impact on Apple's growth over the next three years. He added that he expects Apple to introduce an UltraHD television set in fiscal 2016.

Noting that Apple will launch Apple Pay in October 2014, Icahn said that while he expects limited financial impact in fiscal 2015, more meaningful contribution is expected from the service in fiscal 2016 that will accelerate into fiscal 2017 and the following years.

Icahn is known to amass stakes in companies that he sees as undervalued and poorly managed, in order to push for management changes as well as seats on the company's board of directors for himself and his nominees.

In 2013, Icahn had met Cook and urged Apple, which has a huge cash pile, to return more of its cash to shareholders through the repurchase of shares and by increasing its dividend.

In April 2014, while reporting its financial results for the second quarter, Apple said its board of directors has increased its share repurchase authorization to $90 billion from the $60 billion level announced last year.

Additionally, Apple said at that time that its board approved an 8 percent increase to the quarterly dividend to $3.29 per share. The company also announced a seven-for-one stock split.

AAPL is currently trading at $101.72, up $0.92 or 0.91 percent on a volume of 22.37 million shares.