“We currently have a large position in APPLE. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come,” he tweeted first.
Two minutes later he followed with: “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.”
Though the purchase is under the 5% size threshold for reporting details to the SEC, Apple’s shares had declined more than 22% from a year ago, until popping 5.47% so far today with Icahn’s news. Shares are priced at $492.88 Tuesday, versus a 52-week peak price of $705.07 reached in September.
Apple pricing history:
Some statistics verify Icahn’s belief that the company is “extremely undervalued.” At 10.14, Apple’s P/E ratio is near a 10-year low. And its P/B ratio of 2.95 and P/S ratio of 2.38 are both near their respective five-year low points.
Apple P/E, P/B and P/S ratio history:
GuruFocus’ Peter Lynch chart on Apple also indicates that it is undervalued:
Share Buybacks and David Einhorn
Icahn’s moves on behalf of shareholders increase pressure Apple has already received from activist investors. Over its history, Apple’s share buyback rate has been -1%, lower than 62% of comparable companies. Though growing companies are often not faulted for plowing earnings back into the business rather than dispersing to shareholders, and Cook initiated a $2.65 per-share quarterly dividend in 2012, David Einhorn took issue with Apple’s policy last quarter.
Eyeing the more than $55 billion sitting on its balance sheet, Einhorn fought the company until it agreed to return $100 billion and possibly more to shareholders by the end of 2015.
“This vastly more shareholder-friendly capital allocation policy is a dramatic shift from where AAPL stood just a few months ago. We have added to our AAPL position. We now await the release of Apple’s next blockbuster product,” Einhorn wrote in his first quarter 2013 letter.
In April, Apple also increased the size of its share buyback authorization to $60 billion through year-end 2015, from $10 billion, and increased its quarterly dividend by 15% to $3.05. Apple called the authorization, “the largest single share repurchase authorization in history.”
Einhorn kept Apple as his largest holding through the first quarter, increasing the position by 1,090,700 shares. He owned a total of 2,397,706 shares as of the end of the first quarter.
Icahn has recently also been busy with an ongoing campaign against Dell (NASDAQ:DELL). As he tweeted last week, “We are pleased to have won another battle in the Dell war but the war itself is far from over. More to follow.”
For more on Carl Icahn, visit his portfolio here. Also check out the Undervalued Stocks, Top Growth Companies and High Yield stocks of Carl Icahn.
Not a GuruFocus Premium Member? Try it for 7 days, free.