Comcast Corporation(CMCSA), the largest cable MSO in the U.S. announced that it will come up with two new usage based billing plans for its customers. We believe that Comcast made this move to restrain the enormous growth of the online video streaming service provider Netflix Inc. (NFLX). 

According to the company, they will abolish their current 250 gigabytes (GB) per month plan and replace it with two separate data plans for all Internet users. One of its plans will have a data capacity of 300 GB and the subscribers will be charged $10 for each additional 50 GB of data usage. Another plan will possibly have different tiers of bandwidth; and the customers opting for the lowest tier will get 300GB.   

Recently, Netflix Inc. had criticized Comcast for its data cap policy. According to them, Comcast had excluded any charges to the subscribers using Xfinity TV via Microsoft Corporation’s (MSFT) gaming console Xbox 360, from their 250 GB plan.In reply, Comcast argued that as the videos come from their own equipment and not from public internet, they don’t include it within the data plan. However, Comcast’s new Skype video calling services through TV uses a lot of data and since it travels through the internet it is included in the data plan.

Cable operators like Comcast are facing stiff competition from non-cable operators who provide live video streaming services over the internet. Non-cable operators who provide video streaming services use a lot of data, thus subscribers using Netflix might not find the given plan sufficient enough. We believe that the company has come up with the plan to discourage customers from using online video alternatives. The company’s new tiered-data-transmission plan which is coming up only as a trial is common with telecom Carriers like AT&T (T).

Recommendation:

Considering these factors, we maintain our long-term Neutral recommendation on Comcast Corporation. Currently, Comcast Corporation has a Zacks #3 Rank, implying a short-term hold rating on the stock.

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KeyCorp (KEY) is the latest to join the list of banks coming up with dividend hikes after qualifying the stress test conducted by the Federal Reserve. The company declared a 66.7% increase in its quarterly common stock dividend to 5 cents per share. The dividend is payable on June 15 to shareholders of record as of May 29.

The hike reflects KeyCorp’s continuous effort towards maximization of shareholder value through its strong cash generation capabilities. Earlier, in July 2011, company had increased its dividend by an impressive 50% to 3 cents per share.

The capital plan submitted by KeyCorp to the Federal Reserve as a part of the stress test included a common stock repurchase program of $344 million and evaluation of a quarterly dividend hike.

In March 2012, KeyCorp’s capital plan got approved after clearing Fed’s stress test that involved assessment of banks’ capacities to withstand a severe economic crisis. After receiving the regulatory approval, KeyCorp decided to go ahead with the stock repurchase plan as well as the dividend hike.

Moreover, the Board of Directors at Keycorp announced a cash dividend of $1.9375 per share on the outstanding 7.750% Non-Cumulative Perpetual Convertible Preferred Stock, Series A, to holders of record as of May 31 for the period commencing on March 15 to the dividend payable date of June 15.

Similar moves by other banks

Several other banks, after clearing the stress test, declared dividend hikes and stock repurchase plans. Notable names include Northern Trust Corporation (NTRS) and JPMorgan Chase & Co. (JPM). Northern Trust declared a dividend increase of 7.1% and a $240 million stock repurchase program. Similarly JPMorgan announced a 20% hike in its dividend as well as a whopping $15 billion stock repurchase program.

Conclusion

We believe the dividend increase and extensive share repurchase plan will enhance investor confidence in the stock, thereby boosting the share prices. Moreover, returning capital to shareholders under apt circumstances will improve KeyCorp’s accessibility to long-term capital.

Shares of KeyCorp currently carry a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we are also maintaining a long-term ‘Neutral’ recommendation on the shares.

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The Australian affiliates of Chevron Corporation (CVX) and Apache Corporation (APA) along with other partners have inked a non-binding deal with Japan’s Tohoku Electric Power Company Incorporated (Tohoku). However, the financial terms of the deal were not disclosed.

Per the terms of the Heads of Agreement, the companies will supply about 1 million tons per annum (MTPA) of liquefied natural gas (LNG) from the Wheatstone Project in Australia to Tohoku, over a period of 20 years.

Located about 7.5 miles west of Onslow, off Western Australia’s Pilbara coast, the Wheatstone is one of the country’s most ambitious resource projects. The venture is proposed to be built with an annual output capacity of 25 million metric tons of LNG.

The initial phase of the project will see the construction of two processing units, known as trains, with a combined capacity of 8.9 million tons of LNG a year and a domestic gas plant. The Wheatstone project is expected to come online by 2016.

Chevron acts as the operator of the project with a 72.14% interest, while the remaining stake is shared by Apache(13%), Kuwait Foreign Petroleum Exploration Co. (7%), Royal Dutch Shell plc (RDS.A) (6.4%) and Kyushu Electric (1.46%).

Over the last one year, Chevron and partners have entered into multiple deals with Japanese and South Korean companies to sell a major portion of LNG from the project. With the recent Tohoku deal, more than 80% of Wheatstone’s LNG is under long-term contracts with customers.

We believe that the Wheatstone project coupled with the other major Gorgon venture will provide considerable economic benefits such as employment, government revenue and local business opportunities across the country. Both the ventures, upon completion, will hold a leadership position among natural gas and LNG suppliers in the Asia-Pacific belt.

We maintain our long-term Neutral recommendations on Chevron, Apache and Shell shares. The companies currently retain a Zacks #3 Rank, which translates into a Hold rating for a period of one to three months.

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Pipeline companies Enterprise Products Partners L.P. (EPD) and Enbridge Inc. (ENB) have completed their reversal operation of the Seaway pipeline. This will enable crude oil to flow from Oklahoma storage hub to the Gulf Coast refining hub.

The reversal of the Seaway pipeline was first announced on November 2011, when the U.S. energy behemoth ConocoPhillips (COP) sold its 50% stake in the pipeline for $1.1 billion to Enbridge.

This turnaround of the 500-mile, 30-inch diameter line will facilitate North American crude oil producers in transporting more than 4 million barrels per day (BPD) of oil to U.S. Gulf Coast refineries. Initially, the pipeline will have the capacity to transport 150,000 BPD, which will likely exceed 400,000 BPD in the first quarter of 2013 upon further alternations as well as improved pumping capabilities.

The companies highlighted that the pipeline is ready to initiate oil transportation this weekend from Cushing, Oklahoma, where the inventory level has reached a record high. According to the U.S. Energy Information Administration (EIA), 45 million barrels of commercial crude oil was stored in the tanks at Cushing as of the week ended May 11. This represents a 12% increase from the year-earlier period. The recent boost in domestic oil production as well as lack of infrastructure to take it out of Cushing had pushed the U.S. benchmark oil prices approximately $20 below European benchmark Brent.

Seaway Crude Pipeline Company LLC is equally owned by the units of Enterprise Products Partners as well as Enbridge. This Seaway system also includes a terminal and distribution network that originates from Texas City, Texas, and serves local refineries and in the Houston region. Additionally, it includes dock facilities at Freeport and Texas City.

Enterprise Products Partners, a leading master limited partnership (MLP), is engaged in a wide range of midstream energy services to producers and consumers of natural gas, natural gas liquid, and crude oil. With its diverse set of midstream infrastructure assets, we believe the partnership possesses fundamental strengths, which will in turn support consistent distribution growth.

Enterprise holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months.

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We are maintaining our long-term Neutral recommendation on Comstock Resources Inc. (CRK), supported by a Zacks #3 Rank (short-term Hold rating).

Frisco, Texas-based Comstock is an independent oil and gas exploration and production company engaged in the acquisition, exploration and development of oil and gas properties. The company’s operations are concentrated primarily in two regions in the U.S. namely East Texas/North Louisiana and South Texas.

We appreciate the company’s strategy of growing its reserve base through balanced acquisitions, as well as through development and exploration programs. This has been supplemented by successful drilling activities, which expanded the company’s proved reserve base by 25% as Comstock added 228 Bcfe of proved reserves in 2011.

The company’s strong acreage position in the prolific Haynesville/ Bossier Shale play (82,000 net acres with a resource potential of 7.3 trillion cubic feet equivalent) in the East Texas and North Louisiana region provides attractive reserve-add and production growth prospects.

We also believe that the recent acquisition of a sizeable acreage in the Delaware Basin in West Texas from Eagle Oil & Gas Co. will offer Comstock a low risk oil-focused production growth opportunity and drive its overall volumes.

However, our optimism about Comstock is somewhat dampened by the disappointing first quarter 2012 performance. The company reported adjusted loss per share of 30 cents in the quarter, wider than the Zacks Consensus Estimate of a loss of 17 cents. Comstock’s performance also deteriorated considerably from the year-ago adjusted loss of 10 cents per share.

Moreover, Comstock’s high natural gas exposure raises its sensitivity to gas price fluctuations, compared to its more-diversified independent peers with a balanced oil/gas production profile. The company, which derives more than 85% of its reserves/production from natural gas, has seen its sales and income drop drastically in recent quarters on the heels of a sharp drop in gas prices.

Being a relatively small player, Comstock lacks the financial resources of larger industry giants such as Encana Corp. (ECA) and Chesapeake Energy Corporation (CHK). As such, during periods of prolonged credit crunch, the company is forced to spend within its internal cash generation. This may prove detrimental to its growth plans.

Hence, we see limited upside potential for Comstock from current levels and advise investors to hold on the stock.

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Despite ongoing economic upheavals disrupting demand levels, CSX Corporation (CSX) continues to post strong year-over-year growth backed by a favorable pricing momentum. We remain positive on the company’s growth opportunities, pricing power and operating efficiency. We believe that CSX Corp. is among the best positioned rails to benefit from the favorable industry fundamentals.  Market share gains on truck, new business in intermodal, effective cost controls and higher yield in the non-coal businesses remain primary catalysts for an earnings upside.

However, stiff competition, increased railroad regulation, highly unionized labor and uncertain market conditions for some of its product lines may limit the upside potential of the company.

Over the past year, CSX has significantly benefited from positive rail industry pricing and operational improvement that drove its earnings and margin growth. As a result, the company expects to deliver earnings per share growth of 20% till 2015 along with achieving operating ratio target of 65% within 2015.  We expect improving market fundamentals, improved cost control measures and service levels will aid the company in producing these strong bottom-line results.

We remain optimistic on accelerated growth in the company’s major segments, namely Intermodal and Merchandize. Despite a slowing macroeconomic environment, we expect Intermodal to register double-digit growth on the back of tight truckload capacity.  Further, the Merchandise segment is expected to fuel growth with higher volumes in phosphates and fertilizers. Industrial shipments are expected to remain strong driven by growth in Automotive and Metals products. Oil and gas related growth will aid Metals and chemicals shipments. The construction sector is expected to improve driven by recovery in multi-family housing.

Going forward, we expect coal volumes to remain strong with higher utility coal exports, mostly to Asian and European markets. Many developing countries are in the process of building electricity grids that is resulting in more utility coal demand. In 2013, the Energy Information Administration (EIA) projects that electricity generation from coal will increase 7%, as coal prices moderate while natural gas prices increase, due to which utility coal is expected to regain some share. EIA also projects that the share of coal in the U.S. electricity generation is expected to increase 40.9% in fiscal 2012 from the estimated 39.3% in fiscal 2012.

However, the current market conditions in utility coal also remain unfavorable for the company in the near term. Given the low prices of natural gas, declining demand for thermal coal for electricity generation in the domestic market and higher stockpiles, lower shipments of utility coal will remain headwinds for the company in the near term.

Moreover, the company faces significant competition from various transportation providers including railroads like NorfolkSouthern (NSC) and Union Pacific Corporation (UNP) along with motor carriers that operate similar routes across its service area and, to a less significant extent, barges, ships and pipelines. Further, increased railroad regulation, highly unionized labor and softness in construction-related markets affecting Merchandize business may impede growth potential for the company in the future.

Consequently, we maintain our long-term Neutral rating on CSX Corporation, supported by a Zacks # 3 Rank (Hold).

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We are maintaining our Neutral recommendation on The JM Smucker Company (SJM). The company has experienced greater than expected volume decline in major categories like Crisco shortening and oils, Folgers coffee, and Jif peanut butter in the quarter. However, the company recorded sales growth in the quarter fuelled by product innovations in the coffee and consumer foods segment.

Profit Dips in the Third Quarter

Third-quarter of fiscal 2012 adjusted earnings of $1.22 per share lagged the Zacks Consensus Estimate of $1.41 and the prior-year quarter's earnings of $1.27 per share.

The sluggish result in the quarter was led by greater-than-anticipated decline in the overall sales volume, despite robust sales growth.

The company’s margins are getting hurt because of high input cost. The company announced in its conference call that it expects cost increases in excess of $500 million for fiscal 2012. Although coffee prices have become stable recently, they still remain at a record high. Smucker’s profitability largely depends on the price of green coffee.

Fiscal 2012 Guidance Curtailed

Following the soft third-quarter results, the company has lowered its earnings guidance for fiscal 2012.

During the third quarter of fiscal 2012 earnings conference call, Smucker announced that it expects fiscal 2012 earnings to be in the range of $4.60 to $4.65 per share, down from the company's previous estimate of $4.90 to $5.00. Our fiscal 2012 earnings estimate has gone down from $4.96 to $4.69 per share.

Moreover, the company experienced volume declines in major categories in the last three quarters of fiscal 2012. After suffering volume declines of 1% and 3% in the second and first quarters of fiscal 2012, respectively, the company suffered a higher than expected volume decline of 10% in the third quarter. This contraction was fuelled by a decline in mainstream categories like coffee, peanut butter and oils in the last quarter.

The Fall Blake and Holiday season also could not boost volume during the quarter. The company attributed price hikes and hoarding by consumers prior to the price increase to be responsible for the lower-than-expected result during the holiday season. Smucker also anticipates softer volume in the fourth quarter of fiscal 2012 and lowered its earnings and sales guidance for fiscal 2012.

Nevertheless, Smucker offers moderately priced, exclusive quality products that make meals enjoyable and healthy. The company has established a strong brand portfolio.

The company has launched several new products to enrich its portfolio even further. Recent product launches include Folgers Gourmet Selections and Millstone single-serve K-cup portion packs, which provided the company a strong position in the fast-growing single-serve coffee segment. Pillsbury offered sugar-free frostings, brownie mixes, and cake mixes during fiscal 2011.

Further, the company’s strategic acquisitions might help it gain control over the domestic market as well as tap the fast growing emerging markets. Moreover, in March this year the company entered the fast-growing Chinese market and took control of this region’s oat category food business by acquiring a non-controlling minority interest in privately-owned Seamild in China.

Currently, Smucker carries a Zacks #2 Rank (short term Buy rating).

Read the full analyst report on SJM

We maintain our ‘Neutral’ rating on Federal Realty Investment Trust (FRT), a Maryland-based real estate investment trust (REIT) engaged in owning, managing, developing, and redeveloping retail, mixed-use and street-retail properties, primarily in densely populated locations.  

Federal Realty owns Class A shopping centers in high income, infill areas of the country, with a concentration of assets in Washington DC, Boston, Philadelphia, and California. This provides a significant upside potential for the company, with retailers being more selective about expansion and favoring high-barrier, high-growth areas that fare relatively better in a challenging macro-economic environment.

The community and neighborhood shopping centers of the company are anchored by supermarkets, drug stores or high-volume, value-oriented retailers, which provide consumer necessities and are relatively immune to the volatility in the market. In addition, Federal Realty generally signs long-term leases with annual bumps, which is a good hedge against inflation and produces a steady stream of recurring income.

Furthermore, the company has the unique distinction of increasing the dividend for 44 consecutive years – the longest in the REIT industry. This offers a unique investment proposition for investors looking for solid dividend payouts, and augurs well for its long-term growth.

However, the possibility of store closings at many Federal Realty centers due to lease terminations adds uncertainty to the earnings, and it might have to re-let large big box spaces at significantly lower rents in a very tough leasing environment.This affects the top-line growth of the company and puts considerable pressure on its sustainability.

The company also operates in a highly fragmented market and faces stiff competition from other real estate investment trusts as well as from local, regional, and national real estate developers. This affects the top-line growth of the company and puts considerable pressure on maintaining its profitability through stringent cost-cutting measures.

Federal Realty currently retains a Zacks #2 Rank that translates into a short-term ‘Buy’ rating. We also have a ‘Neutral’ rating and a Zacks #3 Rank (short-term ‘Hold’ rating) for National Retail Properties, Inc. (NNN), one of the competitors of Federal Realty.

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Just nearly a week before its first-quarter 2012 earnings release, Tiffany & Company (TIF), a high-end jewelry designer, manufacturer and retailer, hit the market with the news of dividend increase.

Up Goes Dividend

The New York based company, Tiffany, raised its quarterly dividend by 10%. This is the 11^th time the company has hiked its dividend in the last 10 years.

The board approved an increase in annual dividend to $1.28 per share (or 32 cents quarterly) from $1.16 (or 29 cents quarterly). The increased dividend is slated to be paid on July 10, 2012, to shareholders of record as on June 20.

However, the news did not provide any impetus to the stock, as the share price of Tiffany fell 3.4% or $2.08 to close at $60.07 on Thursday. The dividend yield based on the new payout and the last closing market price is 2.1%.

In May 2011, Tiffany, an S&P 500 company, last hiked its annual dividend to $1.16 from $1.00, reflecting an increase of 16%.

Tiffany’s commitment towards increasing shareholders’ return reflects its sound liquidity position and defined future prospects. The company ended fiscal 2011, with cash and cash equivalents and short-term investments of $442.2 million.

Role of Dividend

Increasing dividend is becoming a trend these days, mostly followed by companies that boast of a stable cash position and healthy cash flows. These strategies not only enhance shareholders’ return but also raise the market value of the stock. Through this strategy, the companies also bolster investors’ confidence on the stock, thereby persuading them to either buy or hold the scrip instead of selling them.

Perhaps, a hike in dividend appears to be one of the best tools to win the hearts of the investors, who now prefer to move to a safe haven, in an economy that is still struggling to recover. Investors, in order to shield themselves from the upheavals that the financial world is susceptible to, are now diligently choosing their portfolio of stocks that can give them the best returns. On that note, while building the portfolio, dividend growth potentiality plays a vital role.

Closing Comment

Tiffany holds a significant position in the world jewelry market and is poised to benefit from its increased geographic reach. The company generates nearly half of its total sales internationally. We believe that Tiffany is well positioned to deliver healthy sales and earnings growth.

The company is focused on opening smaller stores that offer selected collections of lower-priced, higher-margin products, which in turn boost store productivity. Tiffany concentrates on improving sales per square foot through higher customer traffic and converting them into potential buyers by targeted advertising, ongoing sales training and customer-oriented initiatives.

However, the company’s customers remain sensitive to macroeconomic factors including interest rate hikes, increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels, which may negatively impact their discretionary spending, and in turn hurt the company’s growth and profitability.

Tiffany, which faces stiff competition from Signet Jewelers Limited (SIG) and Zale Corporation (ZLC), is scheduled to release its first-quarter 2012 financial results on May 24, 2012. Currently, the Zacks Consensus Estimate is pegged at 70 cents a share, reflecting a year-over-year growth of 4.5%.

Currently, we have a long-term ‘Neutral’ recommendation on the stock. Moreover, Tiffany holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating.

Read the full analyst report on TIF

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DISH Network Corp. (DISH) reported mixed financial results for the first quarter of 2012. However, the company generated huge net subscriber addition in the last quarter buoyed by lower churn rate. The new movies streaming services that DISH Network has started after its acquisition of Blockbuster movie chain, better overall pay-TV services, and increased customer loyalty helped the company to outpace its closest rival DIRECTV Inc. (DTV) and several cable TV operators in terms of net subscriber addition.

DISH Network is continuously improving its technically superior hardware, the latest of which is a HD DVR set. This device will enable subscribers to automatically skip all advertisements for prime time TV programs. At the end of the first quarter of 2012, DISH Network had approximately 14.071 million subscribers. Meanwhile, the company suffered a major blow as FCC delayed its decision to grant the company a waiver to establish wireless broadband network. We reiterate our long-term Neutral recommendation on DISH Network.

We believe management is trying hard to develop DISH Network as storage for spectrums that can be used to grow a viable pay-TV distribution network. The newly acquired spectrums from TerreStar Networks Inc. and DBSD North America Inc. provide most valuable assets to the wireless industry. Using these slots of airwaves, the company can form a formidable video-on-demand service over a wireless network of mobile handsets, such as smartphones and tablets or can monetize these airwaves with significant financial gain.

Recently, Standard & Poor's Ratings Services (S&P) raised the company’s outlook on the company from Stable to Positive. The reason for this upgrade was the proposed wireless network strategy of DISH Network.

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