Carl Icahn is at it again. The activist shareholder has been pestering Apple (AAPL) management for years to increase its buyback program, stating that its shares are worth more than double what they are right now. Last October, Icahn wrote an open letter to CEO Tim Cook with a valuation showing that Apple stock is worth $203 a share. At the time, Apple stock was sitting at $101.80 a share.

Fast forward seven months and Icahn has penned another open letter to Tim Cook, this time opining that the company’s stock is worth $240 a share — shares are now selling at $130.07. The basis for Icahn’s valuation?

“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.

To arrive at the value of $240 per share, we forecast FY2016 EPS of $12.00 (excluding net interest income), apply a P/E multiple of 18x, and then add $24.44 of net cash per share.”

Icahn good for Apple

Before we jump into the actual valuation, let me say that Carl Icahn has been a good force for Apple. When he started pushing management two years ago to initiate a large buyback program when operations were down, the company did, injecting an optimism that it couldn’t organically produce.

After that, he has pushed Apple to do greater buybacks, and the company has responded, continuing to add value to shareholders. There was also a stock split in there. When Icahn wrote his letter last October, no one knew what kind of Q4 the company would have — yet Apple set records. Even Q1 in 2015 set records for the company. So does Icahn have it right? Will Apple continue to fire on all cylinders and drive this stock to $240?

Problems

The main issue I have with Icahn’s prediction for Apple this year and next year is that he is too optimistic about the iPad, the Apple Watch and a large screen Apple TV.

iPad – The basis of Icahn’s argument is that Apple is at an inflexion point with the iPad. After seeing significant cannibalization from the larger iPhone and customers not upgrading to newer iPad versions, Icahn argues for a larger iPad screen to enhance the user experience. While a larger iPad may be in the works, there’s simply not enough user demand for a larger iPad like there was for a larger iPhone. There’s simply no evidence that the iPad market is poised for a rebound.

Apple Watch – Icahn is quite bullish on this new Apple product, expecting it to gain traction to sell 10 million units over the second half of 2015 and to be followed up by a second generation to be released in the second half of 2016. However, the Apple Watch’s launch was a little shaky — it seems as if all of Apple’s first generation products are shaky. So while I am bullish on the advancements the company will make with its second generation, whenever that’s released, I don’t believe that the first generation will gain traction as much as Icahn seems to believe. Although, to be fair, the company has already released its first OS update to the Watch, so that might spur more interest.

Apple TV – Icahn might need to change his model entirely based on new information from the Wall Street Journal. According to the Journal, Apple “quietly shelved plans” for a TV set more than a year ago. Apple had considered different features that would revolutionize the television, such as the ability to make video calls through the set, but the company didn’t deem any of them compelling enough to justify entering a competitive and low-margin market.

Conclusion

I’ll agree with Icahn that Apple isn’t going anywhere but up. But I see some fundamental flaws in his valuation, specifically surrounding his optimism in products that are either on the decline (iPad), still in incubation (Apple Watch) or completely off the company’s radar (Apple TV).

Apple’s forward PE ratio is still cheap compared to the S&P 500, making it a value buy for investors, but it’s definitely not worth $240 at this point, though it may be sometime in the future.