Apple's Devices Are Better, Not Different, And That's Okay

UBS says Apple Inc. AAPL's new devices are better, but not different, albeit huge investor expectations from the company.

The iPhone 7 starts at $649 and the iPhone 7 Plus at $769 with a storage range of 32-256GB, doubling storage at all tiers including for the 6/6s.

"Nevertheless, the combination of iPhone 7 advances (camera, battery life, screen, wireless earbuds, stereo speakers, water proofing) and Apple Watch Series 2 sport capabilities keep offerings competitive until more differentiation arrives next year," analyst Steven Milunovich wrote in a note.

The analyst noted that the wireless AirPods costing $159 is an interesting innovation with the chargers built into the case and based on the W1 chip, thereby vertically integrating Apple's semiconductor technology.

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"Enhancements should be sufficient for iPhone to show modest growth in F2017," Milunovich highlighted.

The iPhone 7 will be available for preorder on September 9 with shipping and store availability in more than 25 countries (2x the number of countries that were selected for launch of iPhone 6S) on September 16.

In addition, the Watch Series 2 emphasizes fitness along with water resistance for swimming and built-in GPS. There also is an Apple Watch Nike+ for running. The Series 2 sells for $369. The original Apple Watch stays around at a lower price of $269.

"Eventually we expect to see advances in health monitoring, but those aren't ready yet," Milunovich noted.

Despite Apple places equal importance to the Watch, the analyst said it would take couple more iterations to make the Watch as a must-have.

The analyst maintained his Buy rating and $115 price target.

"We continue to see limited downside given low valuation, but doubt there are sufficient catalysts yet for a substantial move up," Milunovich added.