Activist investor Carl Icahn has set Apple (AAPL -2.53%) in his sights once again. The noted investor, famous for shaking up management teams and pressuring companies to pursue his strategic visions, recently commented on his investment in the technology giant.

Icahn believes Apple shares are significantly undervalued. In fact, he thinks Apple is worth north of $200 per share, which would represent a nearly doubling of its current share price. Whether his valuation call proves prescient will be revealed over time.

Another item Icahn commented on was Apple's share repurchase policy. He believes there's room for Apple to get more aggressive when it comes to buying back its own stock, which would make sense in light of his valuation argument. But Apple is already very generous with its share buyback program.

Apple is truly unlike any other company
When it comes to most companies, it's reasonable to question management's capital allocation priorities. Typically, a company has to make some difficult choices on how to divide up its cash flow, between capital expenditures to fuel future growth, dividend payments to satisfy income investors, and share repurchases to help juice earnings growth. This is usually a tug-of-war of sorts, since many companies have big capital expenditure needs, or have a devoted group of investors that demands a high dividend.

Apple, however, is in a very unique position. The company is in the enviable position of generating so much free cash flow that it can afford to spend billions on capital expenditures, share repurchases, and dividend payments, without giving investors the feeling that they are being short-changed in any one specific area.

More than enough cash to go around
For example, Apple generated $40.7 billion of free cash flow over the first three quarters of its fiscal year. This is up about 8% year over year. Apple rakes in a ton of cash, which gives it a lot of flexibility to reward shareholders in a number of ways.

First and foremost, Apple buys back lots of stock. The company has spent $28 billion repurchasing its own stock over the past three quarters. This compares to $8.2 billion in dividends paid in this time. If anything, it's Apple's income investors who could feel they aren't getting their fair share. After all, Apple stock provides a dividend yield that is less than 2%, which falls short of the stock market average. Apple could easily afford a stronger dividend increase.

Apple can afford to send so much cash back to investors because it neither has huge capital expenditure needs, nor does it hold a lot of debt that needs to be repaid. Apple's capital expenditures over the first nine months of the year totaled just $5.7 billion. Apple doesn't need to reserve much cash for debt payments, since the company has $29 billion of long-term debt, which is very modest considering it has $120 billion in shareholder equity. Apple's long-term debt to equity ratio is a very comfortable 24%.

Apple's buyback strategy is right on the money
The basis for Carl Icahn's desire for Apple to buy back even more of its shares is that the stock is undervalued right now. If Apple waits to buy those shares, it will have to pay a higher price, making those future share repurchases less valuable. Whether Icahn's valuation call is correct is somewhat subjective. Apple trades for 16 times trailing earnings and 14 times forward EPS. These multiples are a discount to the broader market, but aren't a screaming bargain, and represent significant multiple expansion from Apple's valuation one year ago.

What we do know, however, is that Apple wants to make sure it has enough cash flow to reward shareholders in a number of ways. The company's core priorities include capital spending to fuel future product innovation, maintaining a strong balance sheet, and returning cash to shareholders through dividends and repurchases. If Apple became too overzealous in one specific area, it would throw its capital allocation strategy out of balance. Plus, if anything, it's dividend investors who have the best argument that they are not getting enough cash their way, given Apple's modest 8% dividend raise this year and its low dividend yield.

If Apple does reach $200 per share, Icahn and his fellow investors will undoubtedly be happy. In the meantime, however, there does not appear to be an immediate need to increase the share buyback plan. Further, with some of Apple's cash being held overseas, the company would likely need to repatriate the cash for additional buybacks and pay taxes on it.