7-Month-Old iPhone 7 Already Looking 'Long In The Tooth,' And It's Apple's Fault

With the highly anticipated release of the iPhone 8 only months away, investors shouldn’t get too hung up on Apple Inc. AAPL’s second-quarter results. Shares initially dropped 5 percent after Apple reported earnings. According to Argus analyst Jim Kelleher, Apple dip buyers made the right move.

Step Aside, 7

Kelleher sees huge demand for the iPhone 8 and says the iPhone 7’s shelf-life is already winding down. He said the iPhone 7 does not have as much staying power as previous models for two reasons. First, the iPhone 7 did not represent a new form factor compared to the previous model. Second, by choosing to skip the typical “S” model iteration this year and jump straight to the iPhone 8, the iPhone 7 will seem obsolete much faster than previous models.

All things considered, Kelleher believes the iPhone 8 will be a major hit for Apple.

High Expectations For 8

“We expect iPhone 8 to be a big global success,” Kelleher explained. “Regardless of the reception for the new phone, iPhone unit sales are growing large and also steadier and with less seasonality thanks to the giant installed base.”

While investors wait for the iPhone 8, their attention should be focused on Apple’s valuation. Kelleher points out that Apple has historically traded at a 14-percent discount to the overall market’s earnings multiple but is currently trading at a 15-percent discount, making it a compelling valuation play. In addition, Apple’s massive cash hoard and aggressive capital return program limits the stock’s potential downside.

Argus maintains an Outperform rating on Apple and a $160 price target on the stock.

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