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Carl Icahn: Everyone Is Underestimating Apple; Target US$240!
Aspire, Thought Leaders | 27 May 2015
By: Vance Wong
Articles (74) Profile

Source: CNBC

In the most recent letter from billionaire activist investor Carl Icahn to CEO of Apple Tim Cook, the former reiterated his sentiment about Apple’s valuation being ridiculously low. The chairman of Icahn Enterprise strongly believes that Apple shares have an actual value of US$240, suggesting that Apple’s market cap is nearly US$1.5 trillion.

Icahn’s bullish sentiment about Apple’s value is largely because of his prediction that Apple will enter the television market in 2016 and the automobile sector by 2020. He went on to comment that Apple is “truly impressive” because of their ability to grow despite the strong Dollar and other factors.

Apple’s Future Dependent On TV And Cars

Icahn’s forecast not only considered Apple’s recent huge success with the iPhone 6 launch, but also the tech giant’s possible entrance into two new markets that have a potential combined market size of US$2.2 trillion.

As such, Icahn forecasts a US$12.00 Earnings Per Share (EPS) in FY16 (current is US$2.33) and a Price/Earnings (P/E) ratio of 18 times in FY 2016. However, considering the market size of television and automobile, he thinks that this is a “very conservative” premium to that of the market.

While the materialisation of an Apple TV has not been explicitly expressed, Icahn believes that an entrance into the television sector would be a great addition to the ecosystem.

Icahn: I Told You So

Icahn mentioned that his forecasts are not exaggerated by any means. He pointed out that analysts thought that his sentiments were “too aggressive” before but it is now “largely” similar to his.

Furthermore, although his forecast for FY 2016 is “significantly” above that of the Wall Street’s, he pointed out that back in 2014, his FY 2015 forecast was also way above but in line with the general consensus now.

With the addition of a newest wearable, Icahn expects the Apple Watch to boost earnings even further, despite the general scepticism by many analysts. Additionally, a new iPhone is expected to be released in 2016, which would almost certainly boost sales, according to the activist investor.

You Should Buy Apple Now

Managing Director of FBR Capital Markets Daniel Ives told CNBC that although the iPhone 6 was Apple’s “golden goose”, he would expect the Apple Watch to boost sales and earnings. Additionally, he thinks Apple would hit the $1 trillion cap in about a year from now.

In another CNBC news report about Carl Icahn’s letter to Tim Cook, analysts commented that while a $240 valuation and $1.5 trillion market cap might be overly optimistic at this point, investors that do not already own Apple, can consider looking for an attractive entry point.

Furthermore, with Apple’s recent US$80 billion share repurchase and very probable future share repurchases, shareholders can expect huge returns. An interesting fact about Icahn and Apple: since his tweet about his position in Apple in August 2013, the activist investor has made about US$3.4 billion to date.

If you are a tech investor, chances are very high that you already have Apple in your portfolio. However, if you are not already in, maybe it is time to look for an attractive point to enter, regardless whether it is for the short-term or long-term.

With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

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