Carl Icahn thinks his Apple stock should be worth double current value



It’s likely that Tim Cook doesn’t exactly look forward to hearing from Carl Icahn, but it’s difficult to argue that the activist investor isn’t a massive cheerleader for Apple.

As promised, Icahn published his open letter to Tim Cook today and the big surprise (spoiler alert!) is that he feels his 45 million shares of AAPL stock are grossly undervalued.

In a message entitled “Sale: Apple Shares at Half Price,” Icahn explains why he believes Apple stock is currently trading at half its true value, instead claiming it should be priced at $203 per share — based on growth forecast for the next two years, alongside the company’s massive cash reserves.

“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,” Icahn writes. “Quite to the contrary, we could not be more supportive of you and your team, and of the excellent work being done at Apple, a company that continues to change the world through technological innovation.

The intention of this letter is to communicate two things to you: (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.”

This second point suggests Icahn is still pushing for his Apple stock buyback — despite being forced to back down on the same point last year after proxy adviser ISS’s call against the proposal.

Icahn also offers his thoughts on Apple’s various existing and rumored product categories, with two of the most interesting ones reproduced below:

On Apple Watch:

Over the next three years, we expect the Apple Watch to have a significant impact on Apple’s growth … It appears to us that Jony Ive and his team have yet again executed at a level that will bring to market a product that revolutionizes the entire category from both a hardware and software perspective, especially given that Apple has developed an entirely new operating system for this device, and catered to the notion that such a device needs to be far more fashionable and personal than other products currently available in this category.

As an accessory to the iPhone … we believe we have included in our forecast sales for the Apple Watch that imply a reasonable attach rate to the iPhone, with unit sales volume resembling that of the iPad in scale, and ramping at a similar incline, selling 20 million units in FY 2015, 45 million units in FY 2016, 72.5 million units in 2017.

And on an UltraHD TV:

While Apple has not announced plans for a TV set and may never do so, we believe we have good enough reason to expect the introduction of an UltraHD TV set in FY 2016. We think television represents a large opportunity for Apple, one that reaches far beyond “the hobby” that Apple TV currently represents … It should also be noted that Reed Hastings, CEO of Netflix, has referenced UltraHD as a major catalyst for Netflix going forward, and while this is true for Netflix, we believe it is also true for Apple.

Against the backdrop of this replacement cycle, FY 2016 represents an opportune time to introduce an UltraHD TV set. Therefore, included in our forecasts, we expect Apple to sell 12 million 55” and 65” TV sets in FY 2016 and 25 million in FY 2017 at an average selling price of $1,500 at gross margins consistent with the overall company.

While we think adding a TV set to the Apple ecosystem would be meaningful from a financial perspective, we understand that you may choose not to do so, as you have wisely stated that “the toughest choices for Apple are what not to work on.”

The lengthy letter can be read in full at this link. Icahn is set to do interviews for Bloomberg and Fox Business later today.