We upgrade our recommendation on Grupo Televisa S.A. (TV - Analyst Report) to Neutral based on the company’s strong second quarter of 2013 financial results, outpacing the Zacks Consensus Estimate. Four out of its five business segments of Televisa witnessed considerable sales growth. We also believe that the company is currently fairly valued.
Why the Upgrade?
Televisa enjoys a monopoly with around 70% of the Mexican broadcast TV market. The company’s goal is to create a North American Spanish language media empire, comprising broadcast, Internet, publishing and live events. The pay-TV market in Mexico is vastly untapped.
At present, a considerable share of Televisa’s income comes from its U.S. operations, including the sale of content, website and cable TV. Televisa effectively purchased a 35% stake in Univision Communications, its U.S. rival.
The company allows Univision to access its content and then rebroadcast it on television and the Internet for royalty payments. The second-quarter 2013 royalty from Univision was a record high $70.5 million, up 9.9% year over year.
We believe that the new 2013 telecommunications industry reform bill of the Mexican government will affect Televisa positively as well as negatively. Presently, the company controls four free-to-air broadcast channels, two of the largest satellite-based TV channels, and three cable TV units offering triple-play TV, voice and Internet services.
Undoubtedly, a foothold in the lucrative mobile market will make the company a highly integrated broadcasting and telecommunications operator in Mexico.
Other Stocks to Consider
Televisa currently has a Zacks Rank #4 (Sell). Other stocks in the broadcast-TV industry that warrant a look includes LIN TV Corp. , Belo Corp. and Entravision Communications Corp. (EVC - Snapshot Report). While both LIN TV and Belo currently carry a Zacks Rank #1 (Strong Buy), Entravision has a Zacks Rank #2 (Buy).