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Icahn urges accelerated Apple buyback

Billionaire activist investor Carl Icahn on March 16,

Billionaire activist investor Carl Icahn on March 16, 2010. Icahn renewed pressure on Apple Inc. chief executive Tim Cook to accelerate buying back the company's stock, saying the shares are trading at half their value. Credit: AP / Henny Ray Abrams

SAN FRANCISCO - Billionaire activist investor Carl Icahn renewed pressure on Apple Inc. Chief executive Tim Cook to accelerate buying back the company's stock, saying the shares are trading at half their value.

Icahn made his demands Thursday in an open letter to Cook saying "our valuation tells us that Apple should trade at $203 per share today," which would put the company's market capitalization at more than $1.2 trillion. The stock closed at $100.80 Wednesday and rose 1 percent to $101.77 as of 9:37 a.m. in New York. Icahn Associates Corp. owns about 0.9 percent of the company's shares.

"The market misunderstands and dramatically undervalues Apple," Icahn said in the letter titled "Sale: Apple Shares at Half Price'" posted on his website. "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."

Icahn is restarting his pressure on Apple after last year pushing the iPhone maker to increase its payout for shareholders. The investor, who first unveiled his stake in Apple in August 2013, followed in December by saying he would pursue a shareholder vote to force the company to increase its stock buyback plan. In February, he dropped his campaign to spur Apple to buy back $50 billion of stock this year, after the company stepped up repurchases.

Icahn had hinted in recent months that he might ramp up activity with Apple. In April, he said on Twitter that he believed Apple was "meaningfully undervalued." He also told Bloomberg last month that he had been adding to his position in the company, saying Cook was a good manager.

Kristen Huguet, an Apple spokeswoman, said the company always appreciates hearing from shareholders.

"Since 2013 we've been aggressively executing the largest capital return program in corporate history," she wrote in an emailed statement. "As we've said before, we will review the program annually and take into account the input from all of our shareholders."

Apple shares had gained 26 percent this year through Wednesday's close.

In his letter, Icahn said Apple products including the iPhone, iPad and Apple Watch will help accelerate earnings growth. The recently introduced iPhone 6 positions the company to take market share from Google's Android, he said.

With Google as Apple's "only real competitor," Icahn said he believes a revenue and earnings per share forecast of 25 percent and 44 percent growth, respectively, is justified for Apple in fiscal year 2015.

Icahn said he thinks Apple is worth 19 times his forecast for fiscal 2015 earnings, valuing the company at $203 a share. The Cupertino, California-based company now trades at a price- earnings ratio of 13.8 relative to analysts' average estimate for 2015 profit, according to data compiled by Bloomberg.

"The more shares repurchased now, the more each remaining shareholder will benefit from that earnings growth," Icahn wrote.

Apple finished the quarter that ended June 30 with $164.5 billion in cash. In April, the company said it would increase its share repurchase authorization by $30 billion, boost its dividend and split its stock 7-for-1. The move followed an announcement in April 2013, when Apple disclosed a plan for a total of $100 billion in dividends and buybacks.

"Spending some amount of money on a stock buyback is reasonable and more than what they are doing today would make sense," Andrew Uerkwitz, an analyst at Oppenheimer & Co., said in an interview. "We think that Apple is in a new product cycle that would last three to five years."

Icahn also said there's "good enough reason to expect" Apple to introduce a UltraHD television in its 2016 fiscal year. He said Apple could sell 12 million 55-inch and 65-inch TV sets in the period and 25 million in the company's 2017 fiscal year, at an average price of $1,500.

"Television represents a large opportunity for Apple," Icahn said in the letter. "Televisions are a centerpiece to the modern living room and thereby a promising gateway into the home for Apple's growing ecosystem."

Apple could sell UltraHD movies and shows through iTunes, he said.

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