This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Carl Icahn Is Short Sighted on Apple (Update 2)

Updated from 11:19 a.m. EST to provide information about $500 share price in the third paragraph.

NEW YORK ( TheStreet) -- Apple (AAPL - Get Report) got "iCahned" Tuesday, as the billionaire investor said he believes Apple shares are "extremely undervalued" and the company needs to execute a larger buyback. Raising it again in a relatively short period of time would be short-sighted, and that's not what Apple needs right now.

Icahn advocating for a larger buyback at this vantage point doesn't make sense especially because Apple just raised its buyback to $60 billion from $10 billion a few months ago. I guess $60 billion isn't enough.

Nonetheless, Apple shares climbed over $500 Tuesday on continued optimism over Icahn's tweets, reaching a high of $504.25, before finally settling at $498.50. It was the first time Apple shares had reached $500 since January, despite the market rallying throughout 2013.

It's possible Apple shares rise in the short-term, as investors place optimism that Icahn can agitate Apple enough to get it to do something. That optimism is short-sighted, as the focus for Apple over the next 12 months should be focusing on products, software and services that can help in the long run, not just buying back additional shares.

When Apple reported its fiscal second-quarter earnings, it raised its buyback program to $60 billion, tacking on $50 billion to the largest corporate buyback in U.S. history. The iPad maker also raised its quarterly dividend by 15% to $3.05 per share, bringing its total cash return to shareholders over the next three years to $100 billion.

Apple needs some cash to run its operations and fund R&D. Putting a majority of it now to fund a bigger buyback would be the short-term nature of Wall Street vs. the long-term thinking of Apple and tech in general. It's a culture clash, and one I'm not sure Mr. Icahn is likely to win, at least for now.

The company sold $17 billion in debt earlier this year in part to alleviate the issue of its massive international cash hoard.

In an interview with The Wall Street Journal, Icahn said Apple is worth $625 per share, even with little to no earnings growth, arguing that the the Cupertino, Calif.-based tech giant can borrow more money to fund an expanded buyback program.

What Icahn is advocating is for the company to pile on even more debt onto its balance sheet to help fund the buyback. Apple had $146.5 billion in cash and equivalents at the end of its fiscal third-quarter, but that number is likely to come down, albeit slightly, as the company returns $100 billion in cash to shareholders over the next few years.

Much of Apple's cash is international, which has been the issue before with doing larger buybacks and dividends. David Einhorn suggested using preferred stock, in an attempt to alleviate this issue, by trying not to repatriate the off shore cash. Barclays Capital analyst Ben Reitzes, who rates shares "overweight," with a $525 price target, noted it could be possible that Icahn has a plan for the overseas cash. "As a result, it could also be possible that Mr. Icahn has suggestions for a faster plan and even has plans for overseas cash that are not yet evident to investors," Reitzes penned in his note.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs