Activist investor Carl Icahn said he has amassed a “large position” in Apple Inc and believes the stock could be worth as much as $700 a share if Chief Executive Tim Cook pushed for a larger stock buyback.<\/p>\n
The surprise revelation from the billionaire activist caused a stir on Wall Street and pushed Apple’s stock almost 5 percent higher to close at a 7-month high of $489.57 on the Nasdaq on Tuesday.<\/p>\n
Icahn said on Twitter that he had a “nice conversation” with Cook on Tuesday and they planned to speak again soon. Apple confirmed the conversation took place, but did not say if it influenced management’s view of buybacks.<\/p>\n
Icahn told Reuters that the iPhone, iPad and Mac computer maker has the ability to do a $150 billion buyback now by borrowing funds at 3 percent.<\/p>\n
“If Apple does this now and earnings increase at only 10 percent, the stock – even keeping the same multiple currently – should trade at $700 a share,” Icahn said in a phone interview. Apple has “huge borrowing power, little relative debt and trades at a low multiple.”<\/p>\n
Icahn, who this year launched an assault on Michael Dell’s $25 billion effort to take Dell Inc private, did not say how many shares of Apple he holds.<\/p>\n
A source familiar with the matter, who declined to be named because Icahn hasn’t disclosed his holdings in Apple, said the investor’s stake was worth around $1 billion, a fraction of the company’s market value of more than $400 billion.<\/p>\n
U.S. rules require investors to disclose stakes of 5 percent or larger within 10 days of hitting that threshold.<\/p>\n
In April, Apple bowed to Wall Street pressure and said it would return $100 billion to shareholders by the end of 2015 – double the amount set aside previously. It got there in part by raising its dividend 15 percent and boosting its share buyback program six-fold to $60 billion, one of the largest of its kind.<\/p>\n
The news gave Apple shares a lift, but they remain down more than 30 percent since hitting a record high of $702.10 in September 2012, pummeled by fears of slowing growth and thinning margins amid competition from Samsung Electronics.<\/p>\n
“We currently have a large position in Apple. We believe the company to be extremely undervalued,” Icahn said in one of two tweets about Apple on Tuesday.<\/p>\n
“Had a nice conversation with Tim Cook today. Discussed my opinion that a larger buyback should be done now. We plan to speak again shortly,” he said in his second tweet.<\/p>\n
Icahn is the second prominent activist to target Apple this year. The company had averted a dispute with hedge fund manager David Einhorn of Greenlight Capital, who sued Apple to try to block a proposal regarding voting on preferred shares.<\/p>\n
Apple eventually withdrew the proposal. Einhorn’s $8 billion hedge fund is a major shareholder and owned about 2.4 million shares of the company as of the end of the first quarter.<\/p>\n
“We appreciate the interest and investment of all our shareholders,” Apple said in a statement on Tuesday in response to Icahn’s tweets. “Tim had a very positive conversation with Mr. Icahn today.”<\/p>\n
Analysts said Icahn’s interest in Apple helped cement improving sentiment on the stock, as investors began to anticipate a new line-up of gadgets in the fall, including possibly a cheaper iPhone that can spearheard a deeper drive into fast-growing emerging markets.<\/p>\n
Speculation has persisted also that the company may be planning some sort of TV or smartwatch product – worn on the user’s wrist – in the near future.<\/p>\n
Cook said last month there will be products “in new categories” but gave no details.<\/p>\n
Apple bought about more than $16 billion worth of stock in the June quarter, much more than analysts had expected.<\/p>\n
“It’s a heavyweight investor who can maybe accelerate the (buyback) program,” said Morningstar analyst Brian Collelo. “It helps the positive momentum that Apple has seen.”<\/p>\n
Others say they saw little need for Apple to expand or speed up its buyback program. Much of the company’s $147 billion in cash is held overseas, and that cash cannot be accessed without incurring taxes. As an alternative, Apple raised debt to bankroll its buyback program.<\/p>\n
“It was already greatly increased and there was a debt offering to facilitate that,” Hudson Square Research analyst Daniel Ernst said. “I can’t say that I agree that the pace of the buyback is tepid.”<\/p>\n
Investors’ biggest long-term concern about Apple is whether the company has lost its innovative edge. “Product innovation and profitability” are now top priorities, Ernst said.<\/p>\n
Apple’s profit fell 22 percent in the June quarter as gross margins slid below 37 percent from over 42 percent a year earlier.<\/p>\n
On Tuesday, about 31 million Apple shares changed hands, almost three times the recent daily average. The stock is now up nearly $20 from its 200-day moving average of around $470.<\/p>\n
Options volume was running three times the average daily turnover with 764,000 calls and 344,000 puts changing hands, according to options analytics firm Trade Alert.<\/p>\n
Apple’s options volume also accounted for 11.6 percent of the total single-stock options volume for the day, data from Trade Alert showed.<\/p>\n
Out with Apple, in with Tesla<\/a><\/strong><\/p>\n Apple sells more iPhones than expected<\/a><\/strong><\/p>\n