When we met, you agreed with us that the shares are undervalued. In our view, irrational undervaluation as dramatic as this is often a short term anomaly. The timing for a larger buyback is still ripe, but the opportunity will not last forever. While the board’s actions to date ($60 billion share repurchase over three years) may seem like a large buyback, it is simply not large enough given that Apple currently holds $147 billion of cash on its balance sheet, and that it will generate $51 billion of EBIT next year (Wall Street consensus forecast).
The S&P 500 trades at roughly 14x forward earnings. After backing off net cash, Apple trades at just 9x (not factoring into account that the company has a significantly lower cash tax rate than the rate Wall Street analysts use). This discount (cash adjusted) becomes even more compelling given our confidence that Apple will grow earnings per share at a rate well in excess of the S&P 500 for the foreseeable future. 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).
While this would certainly be unprecedented because of its size, it is actually appropriate and manageable relative to the size and financial strength of your company. Apple generates more than enough cash flow to service this amount of debt and has $147 billion of cash in the bank. As we proposed at our dinner, if the company decided to borrow the full $150 billion at a 3% interest rate to commence a tender at $525 per share, the result would be an immediate 33% boost to earnings per share, translating into a 33% increase in the value of the shares, which significantly assumes no multiple expansion. Longer term (in three years) 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.
It is our belief that a company’s board has a responsibility to recognize opportunities to increase shareholder value, which includes allocating capital to execute large and well-timed buybacks. Apple’s Board of Directors does not currently include an individual with a track record as an investment professional. In my opinion, any further delay in executing the buyback we hereby propose will reflect this lack of expertise on the board. My firm’s success and my expertise as an investor would be difficult for anyone to argue. Per my investment thesis, commencing this buyback immediately would ultimately result in further stock appreciation of 140% for the shareholders who choose not to sell into the proposed tender offer. Furthermore, to invalidate any possible criticism that I would not stand by this thesis in terms of its long term benefit to shareholders, I hereby agree to withhold my shares from the proposed $150 Billion tender offer. There is nothing short term about my intentions here.
Foarte interesant. Mosul propune, si insista, ca Apple sa intre in datorii si sa foloseasca banii imprumutati pentru a rascumpara actiuni intr-o oferta publica fixa la $525, acum cat pretul e mic, cu scopul de a reduce actiunile in circulatie, a creste EPS si valoarea actiunilor (tinta: $1250 in 3 ani), in acest fel recompensand actionarii care aleg sa ramana.
Eu nu cred ca Tim Cook ar trebui sa isi piarda prea multa vreme cu prostiile astea, daca are in maneca un produs revolutionar care va da din 2014 o noua directie majora de crestere companiei. Insa Icahn il ameninta, nu foarte voalat, ca daca nu face asta board-ul va fi judecat ca nepriceput in returnarea valorii catre actionari. Trecand peste faptul ca nu e chiar asa cum zice Icahn (de pilda, ofertele publice de rascumparare de actiuni se fac la pret semnificativ mai mare decat cursul actual al actiunii, mai ales daca actiunea are in acel moment o tendinta clara de apreciere, asa cum e AAPL acum), reactia lui Tim Cook ne va arata cat de sigur pe viitorul companiei e el. Sa vedem.
Pana atunci „afacerea” Icahn va mai impinge pretul actiunii in sus. Ceea ce nu poate fi decat pozitiv. Go AAPL!