In an open letter to Apple CEO Tim Cook billionaire investor Carl Icahn continued his campaign to convince the iPhone maker to buy back more shares. The letter, posted on Icahn's "Shareholders’ Square Table" site on Thursday morning, however, resembled a love note more than the verbal jabs that have illustrated so many of the activist's crusades.
Icahn begins the 4,000-plus word memo by calling Cook "the ideal CEO for Apple" and peppers the note with thanks for all he has done so far. ("To be totally clear, this letter is in no way intended as a criticism of you as CEO, nor is it intended to be critical of anything you or your team are doing from an operational perspective at Apple.")
The letter goes on to say
With the iPhone as the foundation, Apple’s ecosystem has come to play an important role in the daily life of Apple users, and while Apple continues to make impressive strides to improve it, the competition falls behind in what is arguably the most important race of this technological era. Analogizing Apple to a modern day Secretariat, as this race continues, the further the distance grows between Apple and Google (and Google’s hardware partners) in the premium device category."
The billionaire expects Apple's revenue to grow 25% in fiscal 2015 and earnings per share to grow 44%, with per share growth continuing at a 30% rate in 2016 and 2017. At just over $100 per share Apple's price to earnings ratio is currently 8-times Icahn's 2015 forecast. The activist believes his long term outlook justifies a P/E multiple of 19-times the 2015 forecast which would put the stock at $203.
"These factors combine to reflect a massive undervaluation of Apple in today’s market which we believe will not last for long," writes Icahn. Noting that the company has excess liquidity of $133 billion net cash on its balance sheet Icahn declares, "We are simply asking you to help us convince the board to repurchase a lot more, and sooner." Adding, "The more shares repurchased now, the more each remaining shareholder will benefit from that earnings growth."
Icahn noted he is not picky about the size of the buyback and committed to holding his 53 million Apple shares if the company "consummates any form of a tender offer at any price."
Apple shares were up close to 1% in Thursday morning trading. The stock opened at $101.50 and climbed as high as $101.97 in early trading.
--
