Grupo Televisa Upped to Buy on Probable Univision Stake Gain - Analyst Blog

Zacks Investment Research upgraded Mexican pay-TV and broadcasting behemoth, Grupo Televisa S.A.B. TV to a Zacks Rank #2 (Buy) on Jun 17, 2014.

Why the Upgrade?

The upgrade came on the back of Televisa's speculation that it is likely to gain significantly from its stake in U.S. broadcaster Univision Communications Inc. Privately held Univision is the largest Spanish broadcaster in the U.S.

Currently, a considerable share of Televisa's income is generated from its U.S. operations, which includes the content sale, website and cable TV services. Televisa allows Univision to access its content and then rebroadcast it on TV and on the Internet for a royalty. The U.S. Hispanic TV market is highly lucrative and is growing at a remarkable pace. In the first quarter of 2014, Televisa's royalty from Univision grossed a record-high $64.8 million, up 13.1% year over year.

Currently, Televisa effectively holds a 38% (after converting debt into equity) stake in Univision. In early 2012, Televisa had effectively purchased 35% stake in Univision for $1.2 billion. The contract also allowed Televisa the right to buy an additional 5% stake over the next five years, which will increase its potential ownership in Univision to 40%. This means Televisa can buy another 2% stake in Univision over the next three years.

Televisa commands a very strong position in the Mexican pay-TV market. The company is currently working toward its goal of establishing a strong Spanish media base in North America, comprising broadcast, Internet, publishing, and live events. Further, the pay-TV market in Mexico remains vastly untapped. Several industry researchers estimate that the pay-TV penetration therein has reached barely 50%, which reflects significant opportunity for Televisa's growth going ahead.

Televisa has witnessed upward earnings estimate revisions in the past 30 days, with the Zacks Consensus Estimate for the year 2014 moving higher by 1.7% to $1.17 per share. For the year 2015, the company has seen upward estimate revisions with the consensus moving north to $1.41 from $1.39 over the past one month. Notably, Televisa's expected earnings growth for the next year stands above its peers like LIN Media LLC LIN, AMC Networks Inc. AMCX and Entercom Communications Corp. ETM.

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