Apple, which had a market capitalisation of $US603.6 billion at the close of trading yesterday has been valued at $US1.2 trillion by activist investor Carl Icahn, who claims the company could engineer this valuation with a share buyback.
In a letter to Apple CEO Tim Cook, Icahn made the case for why the California-based company should be trading at $US203 a share, about twice the current price, which would boost its valuation to $US1.2 trillion.
Icahn reckons Apple is on the verge of seeing tremendous revenue growth as it brings out a new product lineup, including larger-screen iPhones, smartwatches and mobile payment technology. So if the market is undervaluing Apple at the moment, Icahn argued, now is the time for Cook to push for a stock b uyback of as much as $US100 billion.
“These factors combine to reflect a massive undervaluation of Apple in today’s market, which we believe will not last for long,” Icahn said, quoted by Bloomberg.
The new iPhone 6 and iPhone 6 Plus are premium products available to a mass market and Icahn predicts they will grab market share from phones based on Google’s Android. The new iPhones should help boost Apple’s earnings per share by 44 percent next year while increasing revenue by 25 percent, Icahn said.
The Apple Watch, which the company revealed last month and promised for sale in the US early next year, should have “a significant impact on Apple’s growth,” Icahn wrote.
He estimated 20 million Apple Watches will be sold in the next financial year, rising to a total of almost 120 million in 2016 and 2017 combined. The investor estimates the average selling price at US$450.
New iPads and the partnership Apple announced in July with IBM should help boost the company’s tablet business by 13 percent in each of the next three fiscal years, Icahn said.
Despite the fact that Apple hasn’t announced plans to sell a TV set, Icahn is convinced the company is on the verge of doing what it did in the smartphone market to televisions, saying the company may introduce an ultra-high-definition TV set in 2016.
Then Apple Pay mobile payment system that’s being rolled out in the USA this month has the potential to generate $US2.5 billion in revenue in financial year 2017 if it takes 30 percent market share of US credit and debit card spending, Icahn estimates.
“Apple, dominant in the premium market, has customers who spend more on average than its peers, and it is therefore unusually well positioned to succeed with Apple Pay where others could not,” he wrote.
