Hispanic media doubly confusing for investors

Entravision gains, but Spanish B'casting farther down Street

NEW YORK -- It's a tale of two stocks.

With Univision Communications now a privately-held company after a private-equity buyout, radio and TV station groups Entravision Communications Corp. and Spanish Broadcasting System Inc. have been the focus this year for U.S. investors looking for a Spanish-language media play.

But while Hispanics remain the fastest-growing demographic group in the country, the two stocks have gone divergent ways, with Entravision up more than 22% year-to-date and Spanish Broadcasting down more than 38% and near its 52-week low.

Looking ahead, Wall Street observers have predicted more upside for Entravision despite slowing financial momentum. And though some suggest Spanish Broadcasting must have declined far enough, analysts continue to recommend that investors sell or hold its shares.

SMH Capital analyst David Miller upgraded shares of Entravision from "neutral" to "buy" this summer with a $13 price target.

"With the disappearance of big brother company Univision from the public markets earlier this year, we note that Entravision is one of only two public ways to play the explosion of the Hispanic-American population from a media and entertainment bias, and easily the cleaner of the two," he wrote in his upgrade report.

Miller cited three forces "that could move the shares significantly higher over the next 12 to 18 months": secular growth trends in Hispanic media, increased political ad spending in 2008 in Spanish-language media and a possible sale of the firm's outdoor unit.

Analyst David Joyce of Miller Tabak + Co. also recently upgraded shares of Entravision from "neutral" to "buy," citing a "selloff of smaller-cap stocks" amid late-summer market turmoil.

He has a $10.50 target price on the stock based on a multiple that is "a significant discount to the 16.5x that Univision Communications was valued at in its privatization and the 13-15x that general market radio and TV stations" have been sold at in the private market.

Banc of America Securities analyst Jonathan Jacoby also has a "buy" rating and a higher $12 price target on Entravision.

As a negative, he cited before Labor Day a second-quarter earnings miss primarily driven by a sluggish TV unit performance because of tough year-ago comparisons due to the soccer World Cup and political advertising revenue. But Jacoby reiterated his "buy" rating, predicting that "management will look to monetize its current asset base (by selling its outdoor unit), look for opportunistic acquisitions and increase leverage to reward shareholders."

Goldman Sachs analyst Mark Wienkes is one of the more careful Entravision watchers. He only has a "neutral" rating on the shares, citing a "soft industry backdrop" as a likely catalyst of slower absolute growth, which could lead to reductions in earnings estimates.

"Entravision's historic outperformance relative to peers has tempered," he also wrote late in the summer in cutting his earnings-per-share estimates for the firm for the 2007-2009 period.

As far as Spanish Broadcasting goes, Jacoby has cut his price target -- from $4.50 to $3.50 -- and has an uninspiring "neutral" rating on the stock.

Similarly, Joyce recently reiterated a "neutral" rating on Spanish Broadcasting with a price-target reduction of 50 cents to $4.50.

Until recently, Wienkes was even more bearish than his peers, with a rare "sell" rating and a $3 price target because of what he called late in the summer "deteriorating radio fundamentals and persistent TV losses."

Last week, he upgraded shares of Spanish Broadcasting to "neutral," citing a 50% price decline since he initiated coverage on the stock in late 2005. However, he made clear in a report that the change was not driven by optimism.

"Our upgrade does not represent a change of our negative view on the fundamental trends as the company's radio division remains challenged while the new TV business develops," Wienkes said. "Rather, we believe that the current valuation now more appropriately reflects these fundamental trends."

He also argued there is the potential, "albeit low, for management to unlock public shareholder value either via selling stations or taking the company private."

Some observers even bet that both Spanish-language broadcasting stocks could move higher during the coming year amid a potential presidential campaign advertising boom.
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