Carl Icahn Takes Advantage of Apple Stock Dip, Buys $500 Million in Shares

Apple shares hit their lowest point in three months on Tuesday, and activist investor Carl Icahn grabbed up $500 million in Apple stock. That brings his total stake in the company to $4.1 billion. Tuesday’s 8 percent price dip was the result of an after-hours selloff incited by Wall Street’s moderate disappointment with Apple’s Q1 financial report.

Mr. Icahn, who feels that Wall Street undervalues Apple stock, has been pushing for Apple to put $50 billion into stock buybacks. In a December 2013 letter to shareholders, Apple addressed Icahn’s suggestion, stating in detail why they thought it was a bad idea. On January 23, Icahn penned his own letter to Apple shareholders. In the seven-page missive, Icahn states that Apple is doing a disservice to its investors. As an undervalued stock, writes Icahn, it is ridiculous for Apple to horde cash rather than repurchase stock.

There are many reasons a company’s management might initiate a stock buyback program. One reason is that the company feels that its stock is undervalued. There are two ways for the company to buy the stock back. They can either offer to buy it from stockholders at an above-market price and within a certain timeframe, or the company can simply purchase shares the same way an individual would, on the open market.

Following the latest quarter, Apple has $160 billion in cash reserves. Apple CEO Tim Cook has stated that the company had been buying back stock all along, that it bought more than 23 of the $60 billion it had been authorized to purchase in fiscal 2013. He also noted that a stock buyback does not make stock prices go either up or down. As for the fiscal first quarter of 2014, Apple disclosed that it bought $5 billion in stock, which is only 10% of the figure Icahn has suggested for the entire fiscal year.

Apple’s first quarter financial results, released on January 27, showed record revenue and profits. But Wall Street was not impressed, which had its predictable effect on the stock’s price. The two main areas in which Apple did not meet Wall Street’s expectations were in iPhone and iPod sales. iPod sales were 6.05 million units, down from 12.7 million in the year-ago quarter. The average analyst estimates for iPod unit sales were 8 million. iPhone sales, however, were the biggest disappointment for Wall Street. Average analyst expectations were sales numbers of 55.3 million phones instead of 51 million. Also, Apple’s net profits were $13.1 billion, which did not move up from the year-ago quarter.

On the other hand, 51 million is an all-time quarterly record for iPhone unit sales. Even better, Apple’s overall revenue hit a record high at $57.6 billion, which exceeded analysts’ expectations by $140 million. Per-share earnings, again, were higher than Wall Street’s predicted $14.09, at $14.50. iPad sales, too, hit an all-time quarterly high at 26 million units. Perhaps the most surprising numbers were Mac sales, which jumped 20% from 4.1 million units in the year-ago quarter to 4.8 million. The last time Mac sales numbers went up was in 2012, and that increase was by only 1%.

Commentators say there are a couple possible reasons for the quantum leap in Mac sales. The MacBook Pro with Retina display dropped $200 in price in Q1 2014. Also, some speculate that Windows 8 has left PC enthusiasts underwhelmed and perhaps the disaffected have turned in frustration to Macs. For Q2, Apple’s revenue estimates are between $42 and $44 billion, which is lower than Wall Street’s estimates of $44 billion. For now, Apple has indicated that no major buybacks are in the offing. If Apple’s Q2 revenues continue to not meet Wall Street’s expectations, Carl Icahn might have yet another opportunity to buy Apple stock.

By Donna Westlund


L.A. Times
Economic Times