We downgrade our recommendation on
Grupo Televisa SA
) to Underperform following its first quarter of 2013 financial
results, which fell below the Zacks Consensus Estimate. Televisa
currently has a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Although Televisa received a formal approval to enter the
Mexican wireless market, Mexican regulator CoFeCo (CFC) imposed
several restrictive conditions on the Televisa-Iusacell merger.
We believe that the recent telecommunications industry reform
bill of the Mexican government may adversely affect Televisa as
the company currently controls nearly 70% of the country's
broadcast TV market. Furthermore, TV Azteca, a sister concern of
Grupo Iusacell, commands nearly 25% of the Mexican TV market. TV
Azteca and Grupo Iusacell are the holding companies of Grupo
Thus, Televisa and Azteca form a perfect duopolistic market
structure in Mexico. The regulatory body may ask Televisa to
disinvest some of its broadcasting assets, which in turn will
reduce Televisa's market share and create an opportunity for
Carlos Slim to enter the Mexican TV market.
Intensifying competition in its core pay-TV market is forcing
Televisa to spend more to develop a new client base. Addition of
new subscribers is generally associated with higher expenditure
since the company needs to install equipment such as satellite
dishes and set-top boxes in the customers' premises. This
resulted in a surge in depreciation and amortization charges for
Televisa in the reported quarter.
Other Stocks to Consider
While we prefer to avoid Televisa until we see signs of
improvement in the company's performance, other stocks in this
industry worth a look are
Entravision Communications Corp.
ValueVision Media Inc.
). All these stocks currently have a Zacks Rank #2 (Buy).
ENTRAVISION COM (EVC): Free Stock Analysis
MULTIBAND CP (MBND): Free Stock Analysis
GRUPO TELEVISA (TV): Free Stock Analysis
VALUEVISION CLA (VVTV): Free Stock Analysis
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