In a letter to Apple CEO Tim Cook, corporate raider and Apple’s seventh biggest shareholder Carl Icahn said Apple is undervalued and will soon dominate the TV and motor space. The tweet linking to the letter sent Apple’s market value soaring by US$8bn.
Despite many predictions and plenty of R&D homework, Apple is understood to have shelved plans to create a standalone television a year ago. Instead it appears to be doubling down on the Apple TV set-top box to be compatible with the Apple Watch.
However, that hasn’t stopped Icahn insisting Apple has the ways and means to still enter the competitive consumer TV space in 2016 as well as the car market by 2020.
Icahn said he believes the giant is worth US$240 per share, 84pc above where the stock closed on Monday.
In his letter Icahn said Apple is misunderstood by Wall Street and the media. “It is our belief that large institutional investors, Wall Street analysts and the news media alike continue to misunderstand Apple and generally fail to value Apple’s net cash separately from its business, fail to adjust earnings to reflect Apple’s real cash tax rate, fail to recognize the growth prospects of Apple entering new categories, and fail to recognise that Apple will maintain pricing and margins, despite significant evidence to the contrary. Collectively, these failures have caused Apple’s earnings multiple to stay irrationally discounted, in our view.”
— Carl Icahn (@Carl_C_Icahn) May 18, 2015
In a letter applauding Tim Cook’s performance – the kind of plaudit that Icahn rarely gives as he has tended to punish companies like Dell and Yahoo! spectacularly in the past – Icahn said he believes the Apple Watch, Apple Pay Homekit, Healthkit Beats and further innovation in Apple’s product lines represent a “tremendous opportunity.”
“It may be difficult for some to fathom (only because Apple is already the largest company in the world), but Apple is very much a long-term growth story from our perspective, which is exactly why we believe the company’s shares should trade at a premium multiple to the S&P 500, as opposed to the S&P 500 trading at a 60pc premium to Apple.
“While we respect and admire Apple’s predilection for secrecy, the company’s aggressive increases in R&D spending (and some of the more well-supported rumors) have bolstered our confidence that Apple will enter two new product categories: television and cars. Combined, these two new markets represent US$2.2 trillion, three times the size of Apple’s existing markets (if we exclude Apple Watch).”
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