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The Zacks Analyst Blog Highlights: DISH Network, DIRECTV, Comcast, Time Warner Cable and Yum! Brands

Zacks Equity Research

For Immediate Release
Chicago, IL – March 28, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the DISH Network Corp. (DISH-Free Report), DIRECTV (DTV-Free Report), Comcast Corp. (CMCSA-Free Report), Time Warner Cable Inc. (TWC-Free Report) and Yum! Brands, Inc. (YUM-Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Thursday’s Analyst Blog:

Will Satellite TV See a Major Merger Soon?

Bloomberg has reported that satellite TV operator DISH Network Corp. (DISH-Free Report) recently sent feelers out to its closest rival DIRECTV (DTV-Free Report) for a possible merger. In response to the news, yesterday, the stock price of DISH soared $3.67 (6.28%) and that of DIRECTV rose $4.17 (5.7%). However, neither company confirmed the report. Currently, DIRECTV carries a Zacks Rank #2 (Buy) and DISH has a Zacks Rank #3 (Hold).

In 2002, the Federal Communications Commission (:FCC) denied a merger proposal between DISH and DIRECTV citing that it will create monopolistic power in the U.S. pay-TV industry. However, the ground reality of the pay-TV industry has witnessed massive changes since then. At that time, cable TV and satellite TV operators were the only video service providers.

However, these traditional players are facing intense competitive pressure from fiber-based video offerings of large telecom operators and the significant growth of low-cost video streaming providers such as, Netflix, Amazon TV, Hulu etc.

According to SNL Kagan, in 2013, the U.S. pay-TV industry lost 251,000 subscribers. At this juncture, attaining economies of scale, deriving significant cost synergies and technological improvement has become critical for the traditional cable and satellite TV operators.

This might have led to the proposed merger U.S.’s two largest cable TV operators, namely, Comcast Corp. (CMCSA-Free Report) and Time Warner Cable Inc. (TWC-Free Report). The deal is currently awaiting regulatory approval. The combined entity of Comcast and Time Warner cable will have around 33 million video, 32 million high-speed broadband (Internet) and 16 million telephony (voice) subscribers.

On the other side, the DISH-DIRECTV merger will create a pay-TV behemoth with around 34 million video subscribers. However, satellite TV operators, by their technical nature, cannot offer broadband or telephone services.

Meanwhile, DISH has created an extremely powerful portfolio of wireless spectrums, which according to several analysts, can be monetized for approximately $26 billion. However, management is yet to take a decision whether it will build its own wireless network or will team up with any existing operator or simply monetize the asset.

We believe that if the Comcast-Time Warner Cable merger proposal gets regulatory approval then a merger between DISH-DIRECTV will also go through. However, some analysts raised concerns.

While Comcast’s and Time Warner Cable’s operations overlap in very few U.S. markets, the largest two satellite TV operators DIRECTV and DISH are both operating in almost all U.S. markets. Therefore, a merger between these two will effectively reduce an alternative source of pay-TV for consumers.

Yum! Brands Unveils Recovery Plan for China

Yum! Brands, Inc. (YUM-Free Report) has come up with an aggressive and comprehensive strategy to reinstate the KFC brand in China. The company had announced this strategy in Feb 2014. It recently unveiled a new menu for its 4,600 KFC restaurants across 900 cities and introduced innovative marketing strategies aimed at improving brand awareness and traffic.

Based on consumer preference, this new menu comprises 15 products of which 10 are new and 5 are re-launched versions of popular items. With two more chicken sandwiches, three new rice dishes, four snacks and six drinks or desserts, customers will now have 66 options altogether to choose from. Going forward, KFC China intends to continue with such menu additions every year.

The company is well aware of the fact that serving good food alone would not suffice to reinvigorate sales. Therefore, its new marketing initiatives include redesigned product packaging, roll-out of a new store design, and a number of digital initiatives including a new mobile app, an e-menu and a prepay take-out option. These initiatives would help to draw customers.

Another interesting marketing initiative undertaken by the company is the promotion of its menu by Chinese celebrities. This will likely boost the demand for items endorsed by them as people will be influenced by the preference of their favorite celebrities.

China has been the largest contributor to Yum! Brands’ revenues in the past few years. According to British Broadcasting Corporation, KFC was named the number one foreign brand in China in 2013. It opened 428 new KFCs in China in 2013 and has the largest home delivery business in the country.

However, Yum! Brands’ China Division has been performing poorly due to a number of issues in the past few quarters. In Dec 2012, the Division faced an allegation regarding the quality of chicken supplied to its KFC restaurants. The resultant adverse publicity has been affecting the division’s performance since fourth-quarter 2012. Moreover, the recurrence of avian flu continues to be a concern.

Nevertheless, driven by its initiatives, the company expects to bounce back in 2014 and register a 20% increase in earnings per share. The company has also resorted to an organizational restructuring to focus on high-potential markets and boost overall operations, signaling an effort to turn around in the coming quarters.

The company presently has a Zacks Rank #2 (Buy).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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