Apple is worth $1.4 trillion, twice its current value, and the iPhone maker should give more of its $194bn cash pile back to shareholders, activist investor Carl Icahn has said.
In a letter to Apple chief executive Tim Cook, Mr Icahn, who holds nearly 1pc of the world’s largest company, claims it is “misunderstood” by Wall Street, and set out his case for why it should boost its share buyback programme, reports The Telegraph.
The investor, who has successfully argued for Apple to boost its buyback scheme in the past, believes the company is set to move into the television and car markets, which could “change the world” and overshadow profits in Apple’s core telecoms market if it is successful.
“After reflecting upon Apple’s tremendous success, we now believe Apple shares are worth $240 today [currently $129],” Mr Icahn wrote. “Apple is poised to enter and in our view dominate two new categories (the television next year and the automobile by 2020) with a combined addressable market of $2.2 trillion.”
Mr Icahn believes that, taken together, the car and television markets are three times larger than the areas Apple’s current products – the iPhone, iPad, iPod and Mac, but excluding the recently-launched smartwatch – cover.
In his view, this justifies the need for Apple to return more money to its shareholders, despite the US technology giant increasing it to $200bn last month.
“With Apple’s shares trading for just $128.77 per share versus our valuation of $240 per share, now is the time for a much larger buyback,” he wrote. “The company’s enormous net cash position continues to grow, while the company’s shares are still dramatically undervalued.”
“We again simply ask you to help us convince the board of how these two underlying issues (inefficient net cash growth and share undervaluation) persist and combine to enhance the opportunity for accelerated share repurchases in greater magnitude.”
Mr Icahn says Apple should be given a price to earnings multiple of 18 times, compared with its current 10.9 and the S&P 500’s 17.4.
Apple has been widely tipped to launch a television, and Mr Cook told Bloomberg last year that it is a product line Apple “continues to have great interest in”.
“If we’re really honest [television] is stuck in the 70s. When you go into your living room to watch TV, it’s almost like you’re rewinding the clock and you’re going backwards,” he told the Charlie Rose Show in September.
“The interface is terrible, I mean it’s awful. You watch things when they come on unless you remember to record them.”
On Monday, Mr Icahn urged the company to crack the television market as “we view television’s role in the living room as a strategically compelling bolt-on to the Apple ecosystem”. He also believes that an Apple version could be used in conjuction with the current product line-up.
“We believe this move into TV will also benefit all the other devices and services in the Apple ecosystem. As just one of many possible examples of this, the Apple Watch could perhaps be used as a remote control.
“Similarly, as we expect Apple to launch a larger 12.9” iPad, it would offer an enhanced viewing experience for an Apple pay TV service, or act an improved ‘second screen’ to an Apple UltraHD television.”
However, it is Apple’s push into the car market which could reap the biggest rewards, as at $1.6 trillion, “the enormous addressable market for new cars is approximately four times the size of the smartphone market”.
Mr Icahn expects the company to release an Apple-branded car by 2020 and see it as the “ultimate mobile device to which it could bring its peerless track record of marrying superior industrial design with software and services”.
