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At the value Icahn is suggesting, Apple would be a nearly $1.5 trillion company. Monday's letter, which was also signed by Brett Icahn and David Schechter, called for accelerated Apple buybacks.
The investor said his team believes that Apple is poised to enter and "dominate" two new product categories: The company will enter television next year, and the automobile market by 2020, he said.
These new categories would have a combined addressable market of $2.2 trillion, he said, adding that many investors do not appear to be factoring this growth into current valuations.
It is our belief that large institutional investors, Wall Street analysts and the news media alike continue to misunderstand Apple and generally fail to value Apple's net cash separately from its business, fail to adjust earnings to reflect Apple's real cash tax rate, fail to recognize the growth prospects of Apple entering new categories, and fail to recognize that Apple will maintain pricing and margins, despite significant evidence to the contrary. Collectively, these failures have caused Apple's earnings multiple to stay irrationally discounted, in our view.
This valuation error, he alleged, could lead to a "de facto short squeeze," wherein underweight funds see the need to buy up more shares.
Underlying the $240 per share valuation, Icahn said, is a 2016 fiscal year forecast of $12 earnings per share (excluding net interest income). The investor said an 18 times price-earnings multiple and the addition of $24.44 net cash per share bring the calculations to his current valuation.
Turning to his activism with the company, Icahn wrote that he appreciates that Apple's board increased its share repurchase authorization by $50 billion.
Still, he asked for Cook's help in convincing the board that (what he views as) inefficient net cash growth and share undervaluation combine to "enhance the opportunity for accelerated share repurchases in greater magnitude."
Icahn said that the call for accelerated repurchases comes from his confidence in the company.
"Apple has clearly demonstrated a track record of excellence and success when entering new categories," he said. "We expect this to continue with the Apple Watch, the television, and the car, and the world will look back on today's undervaluation as a fascinating example of market inefficiency (and likewise on our valuation at 18x earnings per share as conservative)."
"Because of this, we encourage both accelerated and larger-magnitude share repurchases as you consider how to allocate capital going forward," the letter added.