Carl Icahn Returns From Vacation With Gusto

Includes: AAPL, EBAY, NUAN
by: Bret Jensen

After a fairly quiet first couple of weeks of the New Year, Carl Icahn returned to the forefront of the market yesterday. You would think that the multi-billionaire activist could afford a vacation after his huge gains in Netflix (NASDAQ:NFLX), Federal Mogul (NASDAQ:FDML) and others in 2013 that would leave him feeling relaxed and content. Evidently, that is not part of his makeup.

The noted investor started the day by tweeting he has increased his stake in Apple (NASDAQ:AAPL) by $500mm and now owns over $3B worth of shares in the tech giant. He also renewed his call for a much larger buyback using Apple's over $145B cash & marketable securities hoard.

Personally, I would prefer a larger dividend but given Apple sells for 8x forward earnings (after subtracting its cash holdings) which is just more than half the overall market multiple - I am not going to quibble as additional repurchases seems prudent.

Apple has been returning an average of $7B to $9B a quarter to investors via dividend payouts and stock repurchases recently. However, the company is producing such prodigious cash flow its overall cash & marketable securities holdings are not coming down much. My hope that Mr. Icahn continues to apply pressure as the company has more cash that it has any legitimate corporate uses for.

Perhaps Apple and Carl Icahn can come up with a compromise where the company ups its dividend and repurchase program to return $10B to $15B to shareholders a quarter until its cash balance hits a 'piddling' $100B or so - just my two cents.

Regardless of Mr. Icahn's activity, Apple looks like a buy here. Revenue growth should come in at ~8% this year - twice the rate of the overall market. It has signed huge deals with China Mobile (NYSE:CHL) and NTT DoCoMo (NYSE:DCM) in the last few months and should ride the earnings wave triggered by the successful launches of new versions of the iPhone and iPad throughout 2014. BUY

Mr. Icahn then turned his attention to eBay Inc. (NASDAQ:EBAY) announcing he has acquired just under a 1% stake in this payment processor and e-commerce platform. He wants eBay to spin off its fast growing PayPal franchise in a tax-free transaction to shareholders.

This makes logical sense as PayPal would probably attain a higher multiple similar to other payment processors like Visa (NYSE:V) and MasterCard (NYSE:MA) as a separate company. Although logical, I highly doubt this will occur in the near term. If you were CEO, would you want to spin off the sexiest and fastest growing part of your business? Once PayPal accounts for over 50% of eBay's revenues, I could see the company spinning off its marketplace business in a few years.

I owned and was very high on the shares when they traded at ~$30 a share early in 2012. However, even with the just announced $5B increase in its stock repurchase program the stock looks fairly valued here at ~$55 a share. The stock goes for just over 17x forward earnings and does not pay a dividend. Market Perform

Nuance Communications (NASDAQ:NUAN), one of the few Icahn investments that did not produce stellar returns in 2013, finally provided its shareholders some positive news yesterday. The company raised guidance and the stock shot up in trading on Wednesday.

Mr. Icahn did raise his stake in this voice technology company to just under 20% in December and I expect him to chime in again on what Nuance should do going forward in the near future. Maybe he will encourage Apple to purchase it as the company already uses its products. The stock sells for a reasonable 13x forward earnings and the stock is down some by more than a third from its 52-week highs and might be worthy of a small position on improving prospects here.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.