APPLE

08.13.13

Carl Icahn Takes a Shine to Apple

Apple has a new cheerleader. Famed investor Carl Icahn says he has taken a large position on Apple, and says he think it is undervalued.
cnbc_article_header

By Justin Menza and Cadie Thompson

Billionaire investor Carl Icahn revealed on Twitter that he's taken a "large position" in Apple. 

"We believe the company to be extremely undervalued," Icahn said Tuesday. Icahn's investment in Apple is worth over $1 billion, the Dow Jones reported.

Apple stock spiked as much as 5.69 percent on the announcement and closed up 4.75 percent, making it the iPhone maker's second best day of the year.

While Apple is now up over $100 from its 52-week low of $385.10 hit on April 19, it remains down about 8 percent for the year.

Icahn said he spoke with Apple CEO Tim Cook about the company launching a larger buyback and that the two plan to speak again. A buyback is a "no brainer" for Apple, Icahn told CNBC on Tuesday. It would enhance the stock value tremendously, he said.

In a statement, Apple said, "We appreciate the interest and investment of all our shareholders. Tim had a very positive conversation with Mr. Icahn today."

Icahn's disclosure comes one day before the deadline for large investors to disclose their second-quarter holdings.

Ichan's bet that Apple is largely undervalued comes right before the company is about to make significant product launches, said Gene Munster, an analyst for Piper Jaffray.

"The next year is going to be a big year for Apple and he probably thought he might as well hold this meeting before that," Munster said. "There's the investor side of it, which is to own the stock before the product cycle, and there's the activist investor side, which is probably to increase pressure to do a buyback."

Ichan's news comes one day after a report that the company will be launching its next generation iPhone, the iPhone 5S, on Sept. 10.

"My guess is he is probably playing through the end of 2014. But with the new products, the stock would have gone up regardless," Munster, who has an overweight rating on the stock with a $655 price target, said.

Although Icahn is pushing for a larger buyback, it's likely it won't take place until March, Munster said. And while Icahn has the power to make an impact on increasing shareholder dividends, his power over changing the company is somewhat limited, Munster added.

"He's a vocal shareholder who can continue to put pressure on Apple to do the right thing for investors," Munster said. "The easy stuff is to push for higher dividends and the stuff that's little more difficult for him is on the product side. He's not going to add anything really on the product side."

However, besides pushing for a larger buyback, Icahn could also try to shake up management, said Trip Chowdhry, managing director of equity research at Global Equities Research.

"Could a shareholder buyback be the answer? I don't know. Was Carl Icahn's entrance a smart move? The answer is yes, Carl Icahn enters a company when the management is complacent," Chowdhry said.

Under Tim Cook, Apple shareholder value has been destroyed, Chowdhry said. Despite the stock's gains, it is still down significantly from it's all time high of over $700 last September, he said. If a buyback won't turn the share price around dramatically, then there will have to be more done, including a possible change in management, he said.

On Monday, Icahn hinted on the Icahn Enterprises website that he would be using Twitter to make a major announcement.

Icahn's activities have been in the news frequently in recent months.

He has been in a very public battle over nutritional supplement maker Herbalife with Pershing Square's William Ackman. He is also spearheading an effort to wrest control of Dell from founder Michael Dell and keep the company from being taken private.