Shares of Apple stock closed at an all-time high today of $124.88, bringing the company’s marketcap to a staggering 711.59 billion. Tim Cook couldn’t be happier with his company’s performance, but according to famous billionaire investor Carl Icahn, Apple’s stock should really be worth double.
In a letter posted to his Twitter followers, Carl Icahn said his firm has increased AAPL’s forecasted earnings per share in 2015 and believe the market should value Apple at $216. That’s not a price target. That’s what Ichan thinks they should be worth today.
According to Carl, the rest of the market still hasn’t caught on because they’re giving the company a significantly discounted multiple on its P/E ratio compared to the S&P 500.
“We believe this P/E multiple discrepancy between Apple and the broad market index is totally irrational. It seems to us the market is somehow missing a very basic principle of valuation: when a company’s future earnings are expected to grow at a much faster rate than that of the S&P 500, the market should value that company at a higher P/E multiple.”
Carl has been the most vocal proponent of Apple buying back its undervalued shares and giving more cash back to shareholders. He and Tim Cook met several times in 2013. The investor says he hopes Apple’s update to its capital return program in April will include a big increase on share repurchases.
As for the competition, Icahn doesn’t see anyone taking Apple down in the foreseeable future. The P/E multiple Icahn’s using to value AAPL is still “conservative” in his opinion, but the expectations for innovation are bigger than ever.
“It is now plainly obvious to us that there will be no stopping Apple’s peerless innovation track record and best-in-class ecosystem of services, software, and hardware, and that Apple will continue dominating the premium smartphone market by continuing to take premium market share from Google’s Android operating system (and Android-device manufacturers) while at the same time maintaining or growing average selling prices and gross margins.”
Source: Carl Icahn