Alright, I know I’m a little late to the party with my Apple analysis, and my apologies on that. You’ll probably get hit with another wave of sell side analyst commentary pertaining to just Apple in a couple more hours. That being the case, the company’s guidance was the real buzz kill. Going into the earnings announcement I have mentioned on numerous instances that both the sales and earnings outlook was going to disappoint. In-line with those expectations, the company missed the consensus estimate range by a fairly wide margin. The shipment forecast was particularly weak as their revenue outlook embedded the impact from pricing recapture, which was going to negatively affect sales. Source: Apple At least they were a little more upfront about this, because the dollar index weighted on Apple’s sales ticked significantly higher over the year, and while F/X impact was 4% for Q2’16, the long-term effects of pricing recapture is lower demand, which was embedded into Apple’s outlook. Color me surprised – right? No, I’m just kidding, I already knew this was going to be a god awful quarter. Everyone on the buy side anticipated this a couple months in advance. The professionals continue to outwit the idiots and the dumb money. When you see a Morgan Stanley fund manager bragging about selling half of his AAPL stake on CNBC – you should take note (this was back in the low $100s). The Morgan Stanley fund manager was still somewhat late out the door, so I’m guessing the hedge funds were the first to go, and yeah – I almost launched a hedge fund last year. So, you’re talking to someone who’s fairly familiar with the institutional buy side. And if you lost any money on Apple, I share absolutely zero remorse. I hate being the, “I told you so guy.” But then again, I’m going pat myself on the back, as I happily witnessed a bunch of moronic Apple thumping bulls get crushed today. I think Tyson Farms would be awe struck by the pig slaughter of Apple investors/traders today. Anyhow, let’s break down the analysis a little more. I’m anticipating Apple to report in-line or slightly below its sales outlook range. The company offered outlook for revenue at $50 billion to $53 billion. Gross margin of 39% to $39.5%. The margins remain stable due to price recapture. The company’s earnings beat slightly whereas revenue missed slightly. It’s not really relevant, because outlook on next quarter figures tends to matter more in most instances. Furthermore, the top line sales fellow below consensus, which you could hardly label a great quarter. Source: Alex Cho So, essentially if I were to input Apple’s outlook figures into a spreadsheet we end up with an EPS guidance of approximately $1.86. Now personally, I think that’s somewhat aggressive as they have very limited visibility on revenue and for all we know, we could end up walking into another disappointing quarter. That being the case, the current analyst consensus estimate is $2.22 for the upcoming March quarter, and yeah I was being very nice on my share buyback assumptions. Nearly everyone else is thinking of a quarterly 50 million share reduction as opposed to my 83 million shares. Notwithstanding any unforeseen circumstances, the board will likely up its authorization limit. The stock is even cheaper than it was 6-months ago, so I’m guessing it’s an opportune time for Apple to raise additional debt to buy back some shares. Of course, I could be proven wrong, but I guess desperate times call for desperate measures. That being the case, the stock gradually declined throughout the afterhours. It probably took a while to really absorb all the bad data. But essentially, the EPS guide missed the consensus estimate for the next quarter by 16.2%. It’s pretty unprecedented in Apple’s recent history to miss by such a drastic margin. Furthermore, the commentary for rest of year wasn’t exactly reassuring. The company thinks that Q2’16 will be the worst compare due to the heightened demand coming out of Q1’15 translating into a better Q2’15, which wasn’t the case in Q2’16. However, I just can’t shake the feeling that the summer quarters (Q3’16 and Q4’16) will be worse than Q2’16 due to seasonality and handset replacement elongation. Furthermore, the pricing recapture of handsets will have a lagging impact on demand, which will translate into the second half of 2016. My guess? If Apple is indicating that hedges curtailed about 300 basis points of currency impact that the remaining currency impact is mitigated due to a 12 percentage point increase in pricing across its geographies. Therefore, if we operate on a standard elasticity measure of 3.0 to 2.0, the impact on shipment growth could have been anywhere from 36% to 24% in some of these regional markets. So, while Apple tries to play it off like it was tough comparisons due to demand spill over in Q1’15 to Q2’15, there's probably a lot more to the story. And what about the other two quarters (Q3’15 and Q4’15)? Weren’t those results lifted by Chinese demand? Last time I checked, the Chinese segment reported slower growth in terms of unit comps to prior year, and the United States doesn’t want to upgrade from the 5S model. A Credit Suisse analyst Kulbinder Garcha asked a question on device mix on the earnings conference call, and according to Tim Cook “approximately 60% of U.S. handset installed base are prior to the 6 and 6+ generation.” So, in the developed markets we have to factor elongation of refresh and in emerging markets analysts have to model weakening sales compares due to pricing adjustments. Things aren’t looking too hot for Apple. However, I do acknowledge that I was a bit aggressive on my iPhone estimates for Q1’FY 16. I ended up re-modeling my assumptions for the next year to reflect higher iPhone shipments. But overall, I come away with the impression that the stock will continue to underperform. I adjust my EPS figure higher from $7.64 to $8.10, which corresponds to weakness in the Apple Watch, but 20% growth in software through the year. I anticipate iPhone shipments to do slightly better in response to the guidance perhaps 204.78 million units of iPhone through the year (10.2% decline year-over-year). I’m anticipating Q2 shipments of 50 million units, Q3 and Q4 units of 40 million per quarter, which reflects the seasonal weakness plus repricing headwinds. I anticipate an average impact of 6% in terms of foreign exchange this year (good to be conservative) as the dollar will likely experience a rally in response to fed rate hikes and deflationary fears (middle of the year). I arrive at a slightly higher price target of $87.85 from $87.38, which is after factoring in a lowered valuation from 11.61x to 10.76x EPS. After re-doing the math on my forecast I still come away with the impression that the stock has a little more downside. I reiterate my sell recommendation, but recommend investors to consider buying the stock below $90.