Carl Icahn: Apple Should Trade At $216 'Today'
Based on a careful examination of Apple’s tax rates and the accounting rules which it applies to its international earnings, Icahn increased his FY 2015 EPS forecast from $9.60 to $9.70, and claimed that the stock should trade at $216 per share.
The Street has estimated 2015 EPS of $8.57.
Icahn argued that it is “irrational” for the S&P 500 to trade at 17x while Apple trades at 10x forecasted EPS.
“It seems to us the market is somehow missing a very basic principle of valuation: when a company’s future earnings are expected to grow at a much faster rate than that of the S&P 500, the market should value that company at a higher P/E multiple,” Icahn wrote.
Icahn believed Apple should trade at a P/E of at least 20x, “which together with net cash of $22 per share, would value Apple shares today at $216 per share.”
The letter emphasized that $216 is not not a future price target but what the stock should trade at “today.”
Icahn added that “to the extent Apple introduces a TV in FY 2016 or FY 2017, we believe this 20x multiple is conservative.”
Icahn closed the letter by stating that “there will be no stopping Apple’s peerless innovation track record,” and that he looked forward to the introduction of new products, including the Apple Watch.
Apple Inc. recently traded at $124.78, up 2.26 percent.
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