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This month I chose to research Univision Communications Inc.
Univision is the number one Spanish language broadcaster in the United States. Univision Communications Inc. owns the Univision television network which has stations in many large markets in the U.S. and is included on basic local cable in many markets. They also own Galavision which is a Spanish language cable network. Earlier this year they launched the Telefutura broadcasting network. This took over many smaller broadcast stations (WB, UPN, etc.). Basically they are the only broadcasters in Spanish in the country.
In recent quarters, media companies have lost money. UVN has managed to make small profits.
As the number one broadcaster in a growing market (the Spanish speaking market), Univision appears to be well positioned. None of the other major networks have public plans to start broadcasting in Spanish.
Personally, I know how well Univision does in the Hispanic community. My wife is Mexican. She likes to watch Univision. In fact, between 8 and 9pm Eastern, the TV is hers. She watches a Mexican soap opera. As the soap opera was ending this spring, all she and her friends could talk about was this soap opera. Simply put, if you go into a Spanish speaking household after 6 p.m., you will find that if the TV is on, it is tuned into Univision--even if people are not actively watching the show. It's like the Packer game in Wisconsin. You might not be actively watching, but you have it on, 'cause it's the Packers.
The stock has done well in recent years. It has been volatile. When looking at the stock selection checklist, I noticed that the sales for Univision had grown 15% a year compounded, while earnings had only grown 10% compounded. Sometimes that can be a cause for concern. Maybe they are discounting their advertising to get more volume. Maybe they are hurting profits in favor of volume sales. In this particular case, I believe they are using the money to invest in more stations and broadcast channels.
Then I looked into the Stock Selection Guide Page 1. It looks okay. The stock is a little volatile, the advertising markets have been volatile. Then I moved on to page two of the Stock Selection Guide.
The price of this stock has gone up a lot in the last five years. The P/E ratio of the stock has also been high. This stock has an average high P/E of 131 and an average low P/E of 49. These are big numbers. Remember that Citigroup trades with a P/E of between 12 and 20. This means that Univision is a strong growth stock. The market expects the stock to grow at a high rate for many years to come. This also means that if they do not grow at a very high rate, but just at an above average rate, the stock price could come tumbling down. Please also note that the current P/E is 166. This is higher than the average high P/E for the stock.
In looking at the possible risk/reward section, I noticed that the reward could be quite great. If the P/E stays high and the earnings grow to $0.95 per share, the stock price would go up to $124 a share. However, if the earnings stay where they are and the price/earnings ratio were at it's historic average low, we would have an $11 stock which we paid approximately $40 for.
The stock is in the buy range according to the Stock Selection Guide.
UVN pays no dividends.
My rating is a D.
The company will grow. It is well positioned in its marketplace. It will continue to perform better financially than the other media companies. I feel that it is not a stock we should buy. I believe the risks outweigh the rewards on this stock.