Icahn urges 'undervalued' Apple to buy back more shares

By Reuters

Oct 09, 2014 10:02 PM EDT

Billionaire activist investor Carl Icahn said Apple Inc's (AAPL.O) shares could double in value and urged the company's board to buy back more shares using its $133 billion cash pile.

"We believe Apple is dramatically undervalued in today's market, and the more shares repurchased now, the more each remaining shareholder will benefit," Icahn said in a letter to Apple's board released on Thursday.

Icahn, who pledged to keep his own stock out of any repurchase, said Apple stock should be trading at $203.

"At today's price, Apple is one of the best investments we have ever seen from a risk reward perspective, and the size of our position is a testament to this. This investment represents the largest position in our investment history," Icahn wrote.

In an interview Thursday on CNBC, Icahn urged Apple to buy back as much as $100 billion in stock and said he hoped other investors would also press for a buyback.

In June the company split its stock seven for one and in April it raised its share repurchase authorization to $90 billion from the $60 billion announced a year earlier.

Apple shares rose less than 1 percent in early trading to $101.49 but slipped to $100.84 later as the broader market sold off. The stock has gained 25 percent since January.

Owning 53 million shares, Icahn ranks as one of the iPhone maker's top 10 investors and has long urged the company to buy back more shares and raise its dividend.

In his letter he said he expects the Apple Watch, the company's first new product category since the iPad in 2010, to boost the company's growth. He added that television represents a large opportunity for the company.

Icahn, 78, is one of the world's most vocal and influential investors and he has successfully pushed for change at auto rental company Hertz and e-commerce company eBay.

He has taken pains to keep his comments about Apple civil and praised Chief Executive Officer Tim Cook in his letter.

"We could not be more supportive of you and your team, and of the excellent work being done at Apple, a company that continues to change the world through technological innovation," Icahn said.

Although Icahn has run his fair share of proxy contests and sat on many boards, he told CNBC he has no plans to try to replace board members at Apple. He also said he would never run a proxy contest and will always be Apple's "buddy."

Apple has long signaled it will not be pressured into making hasty decisions. On Thursday, spokeswoman Kristin Huguet declined to comment directly on Icahn's letter but said "We always appreciate hearing from our shareholders."

Stifel analyst Aaron Rakers, who has a buy on Apple, wrote in reaction to Icahn's letter that "Apple clearly has an excessive cash and investment balance."

Apple is poised to take market share from Google Inc's (GOOGL.O) Android platform in the premium device market and Icahn forecast the company's earnings would grow 44 percent in fiscal year 2015.

"We think a tender offer is simply a good method of conducting a large repurchase in an expedited time frame, but the exact method and the exact size is not the key issue for us," he said.

According to StarMine's Intrinsic Valuation model, Apple stock should be trading at $111.4. That implies a compounded annual earnings growth rate of 8 percent over the next 10 years, StarMine data showed.

Icahn, who has been tweeting his opinions about investment strategy, earlier this week said he planned to publicize investment ideas on Facebook and other social media sites in addition to Twitter. That does not sit well some investors.

Influential hedge fund manager Leon Cooperman, who owns Apple shares, suggested on CNBC that private discussions might be more appropriate. But Icahn said investors can push for change more effectively in public instead of just whispering into a chief executive's ear.

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