Following comments from billionaire investor Carl Icahn that he had taken a “large position” in Apple and discussed a larger buyback with Apple CEO Tim Cook, Apple’s stock experienced a new six-month high of over $488 per share. Today, AAPL continues to climb and has passed the $500 mark for the first time in nearly eight months since January 23rd.
In an interview with The Wall Street Journal yesterday, Icahn noted that he expects Apple shares will soon rise above $600 and explained his proposal for increasing the stock buyback:
“This is a no-brainer to go buy stock in a company that can go borrow” at a low rate, Mr. Icahn said in an interview. “Buy the company here and even without earnings growth, we think it ought to be worth $625,” he said, referring to the stock price, which closed Tuesday at $489.57, having risen 5% on the news of Mr. Icahn’s investment.
Mr. Icahn’s thesis rests on Apple borrowing at about a 3% interest rate and buying back shares right now, likely at around $525 a piece. A stock buyback can increase earnings per share by reducing the number of shares outstanding.
While Icahn didn’t provide any financial details, WSJ adds that sources say his stake in Apple is now worth over $1.5 billion.
Apple responded to yesterday’s news by saying that it appreciates “the interest and investment of all our shareholders” and that “Tim had a very positive conversation with Mr. Icahn today.”
Apple’s major multi-billion-dollar stock buy-back program launched earlier this year along with accelerated stock repurchasing suggested Apple expected its stock to climb, and some speculate that an even larger buyback proposed by Icahn could increase the AAPL stock value even further.
Piper Jaffray Apple analyst Gene Munster told WSJ that Icahn’s investment “serves as an acknowledgment that better things could be coming from Apple over the next six months, which should help raise the company’s stock.” Also potentially helping Apple stock is the lead up to new products this fall, specifically new iPhone models, expected at an event reportedly scheduled for September 10th.