Carl Icahn says Apple is "massively undervalued"

Billionaire investor Carl Icahn is famous for piling pressure on corporate executives to make the kind of changes that will boost their companies' market value. But he is taking a more delicate approach in leaning on the leadership at Apple (AAPL), already the world's most valuable company.

In a 4,000 word open letter to CEO Tim Cook, Icahn, 78, is asking Apple to step up purchases of its shares, as he commonly does when urging companies to take action to lift their stock price, asserting that the technology giant is "massively undervalued." But the 78-year-old also went out of his way to praise Apple, telling CNBC that it is one of the "great companies' of the last two decades.

"To be totally clear, this letter is in no way intended as a criticism of you as CEO, nor is it intended to be critical of anything you or your team are doing from an operational perspective at Apple," Icahn said in the letter, which was posted on his Tumblr account. "Quite to the contrary, we could not be more supportive of you and your team, and of the excellent work being done at Apple, a company that continues to change the world through technological innovation."

Icahn's chief concern with Apple is the $133 billion in cash on the company's books. That's roughly 40 percent more than the $94.8 billion in cash that's in the coffers of the U.S. government. In response to these concerns, Apple announced plans in April return $100 billion to shareholders, more than double its previous efforts, by the end of 2015. The company agreed to buy back $60 billion worth of stock, an increase from the $10 billion plan announced last year. Apple also raised its dividend by 15 percent.

Shares of Apple have gained 26 percent this year, indicating that many shareholders are pleased with the actions the company has taken. Spokeswoman Kristen Huguet told Bloomberg News that the company's capital return program was largest ever by a corporation. Still, she said Apple will review its program annually and will "take into account the input from all of our shareholders."

Hugent didn't immediately respond to an email requesting comment.

Despite the rise in Apple's stock price, Icahn thinks the company's shares are cheap. He values them at $203, well above the average 52-week price target of Wall Street analysts, which is $111. The stock recently traded at $102.40. Icahn values the company's stock at a price-to-earnings ratio of eight times its 2015 fiscal year forecasts, adjusted for cash. That's well below the S&P 500, which trades at 15 times the 2015 consensus. Icahn expects Apple's earnings per share to grow by 30 percent in 2016 and 2017.

Icahn outlined several reasons for his bullish view on Apple. First, there is strong consumer demand for the company's new iPhone 6 and 6+. He also expects iPad sales to rebound this year if rumors about a new larger screen 12.9-inch model and improvements in its iPad Mini prove to be accurate.

More broadly, Icahn believes that Apple's entry into mobile payments and smartchwatches, and perhaps TV, will drive healthy growth in the years ahead.

"These new launches will further distance Apple's ecosystem from its peers and accelerate revenue and earnings growth in excess of the status quo," he wrote in the letter. "For the next three fiscal years, we forecast robust earnings growth of 44 percent, 30 percent and 30 percent, respectively, driven by strong revenue growth of 25 percent, 21 percent and 21 percent, respectively."

Apple shares were essentially flat in afternoon trading, at $101.23.