High-profile investor and Apple shareholder Carl Icahn has published an open letter to Apple CEO Tim Cook urging him to once again increase its share repurchase program for stock holders. Citing strong iPhone 6 sales and predicting the larger devices will help Apple gain marketshare from Android, Icahn is requesting Cook and Apple’s board make a tender offer to increase its current rate of share repurchases. Icahn said he thinks Apple remains “dramatically undervalued in today’s market,” but didn’t suggest a specific number for the increased buybacks:
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Therefore, given the persistently excessive liquidity of $133 billion net cash on Apple’s balance sheet, 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. We thank you for being receptive to us the last time we requested an increase in share repurchases, and we thank you in advance now for any influence you may choose to have communicating to the rest of the Board the degree to which a tender offer would have a positive impact on an EPS basis for all shareholders… We think a tender offer is simply a good method of conducting a large repurchase in an expedited timeframe, but the exact method and the exact size is not the key issue for us. We are simply asking you to help us convince the board to repurchase a lot more, and sooner. We feel compelled to do so because we forecast such impressive earnings growth over the next few years, and therefore we believe Apple is dramatically undervalued in today’s market, and the more shares repurchased now, the more each remaining shareholder will benefit from that earnings growth.
In order to combat any potential controversy that might arise from the request, Icahn commits not to tender any of his own company’s shares if Apple were to make the requested tender offer. “To preemptively diffuse any cynical criticism that you may encounter with respect to our request, which might claim that we are requesting a tender offer with the intention of tendering our own shares, we hereby commit not to tender any of our shares if the company consummates any form of a tender offer at any price.”
Icahn’s open letter also includes his updated forecasts for growth among Apple’s various product categories for the years to come. In addition to strong growth expected for iPhone, iPad and Mac, Icahn said he expects an “UltraHD TV set in FY 2016” will represent a large opportunity for the company. Icahn claims that through his analysis he thinks Apple should be trading at $203 per share today and noted that “the disconnect between that price and today’s price reflects an undervaluation anomaly that will soon disappear.”
(1) given the earnings growth we forecast for Apple, we continue to think that the market misunderstands and dramatically undervalues Apple and (2) the excess liquidity the company continues to hold on its balance sheet affords the company an amazing opportunity to take further advantage of this valuation disconnect by accelerating share repurchases.
Icahn’s letter can be read in full here.
Update: Apple statement via CNBC:
We always appreciate hearing from our shareholders. Since 2013, we’ve been aggressively executing the largest capital return program in corporate history. As we’ve said before, we will review the program annually and take into account the input from all of our shareholders.