It is no secret that Apple has lots of money in the bank, currently listed at $147 billion. It is also no secret that Carl Icahn wants Apple to spend a chunk of that money buying back their own shares. All Things D is reporting on a letter from Carl Icahn strongly recommending a larger scale buy back program:
With such an enormous valuation gap and such a massive amount of cash on the balance sheet, we find it difficult to imagine why the board would not move more aggressively to buy back stock by immediately announcing a $150 Billion tender offer (financed with debt or a mix of debt and cash on the balance sheet).
The current buy back program is $60 billion over three years. Why recommend more than doubling it? Goosing the stock value of course:
if you execute this buyback as proposed, we expect the share price to appreciate to $1,250, assuming the market rewards EBIT growth of 7.5% per year with a more normal market multiple of 11x EBIT.
Icahn has made a ton of money in the investment world, I have no doubt of his ability to continue to make more. That said, I’m going to disagree with his recommendation to have Apple spend more money on a buy back program.
A large scale buy back program sends a message that they’ve run out of their own investment ideas and the only thing left to do is to try and optimize the stock value based on current products and revenue. If the best return Apple can get by spending $90 billion is to purchase their own stock then that is a sign that they have started to give up.
Apple has done well because they’ve been able to make products that people want to buy, not by trying to tweak their stock value. Apple should stay focused on improving the products they have and developing new ones.