Gut Check: Yo Quiero Univision!

Hispanic media and entertainment companies can thank Ricky Martin for shaking his bon-bon and Jennifer Lopez for taping on that Versace dress.

The Univision File

Current P/E: 77.9

52-Week Range: $62.69-$24

Change From 52-Week High: -36.7%

Shares Outstanding: 206.4 million

Source: Morningstar

As Hispanic entertainment has become more mainstream, mainstream advertisers and investors have begun paying attention to the Hispanic market. Amid this increasing interest, (UVN Quote)Univision, the No. 1 Hispanic network, has grown into the fifth-largest network overall in the U.S.

And fund managers and analysts tell Gut Check this isn't the only compelling figure stacked up in Univision's favor, citing Univision's 82% prime-time market share among Hispanic viewers vs. just 15% for its closest competitor, Telemundo.

A rapidly expanding Hispanic population and the realization on Madison Avenue that Hispanics form an important market that's only going to get bigger promise sustained growth for Univision and other Hispanic media and entertainment companies for the foreseeable future, they say. Fund skippers also like the fact that Univision replaced Union Carbide in the S&P 500 on Feb. 6; index funds tracking this index now have no choice but to include Univision in their portfolios.

Important questions remain about Univision, though. First of all, there's the question of how strong Univision's ad revenues will be in a year widely predicted to be lackluster for advertising sales. There's also the larger question of whether Univision can remain the No. 1 Spanish-language network and continue to appeal to a Hispanic population that's getting increasingly younger. The stock, which was up 184% in 1999, also suffered a 19.9% decline last year amid slower-than-expected growth and the departure of its president, and it still sports a pricey P/E of 78 times trailing earnings.

Despite these concerns, fund skippers remain overwhelmingly bullish on the stock, citing the demographics of the Hispanic market and the network's tremendous popularity.

Gut Check on Univision
Pros	Cons
85% of all viewers of Spanish-language TV tune into Univision, and the Hispanic population is expected to grow to nearly one out of every five Americans by 2025.	Competitor Telemundo's ratings rose 25% last year to 15% of the Hispanic TV viewership, and the upstart has been creating buzz among the Hispanic population with its saucy soap operas.
Some analysts predict Hispanic media budgets will increase 15% in 2001, and "upfront" sales of Univision's fall shows are already up 18%.	Other analysts see growth in the single digits, saying they don't believe even niche outlets like Univision are insulated from a general slowdown in ad spending this year.
UVN's 19.9% decline last year and 9.6% drop so far this year -- after a 183.9% run-up in 1999 -- make it a buy.	UVN still sports a pricey 77.9 P/E and the stock has still declined 8.2% in the first four days after being included in the S&P 500.
Source: Fund managers, Hispanic Business magazine, Merrill Lynch, Morningstar, Thomas Weisel.

David Brady, senior portfolio manager of the (SRFCX Quote)Stein Roe Capital Opportunities fund, has made UVN 2% of his $583 million portfolio because of the rapidly growing Hispanic population. According to the U.S. Census Bureau, the Hispanic population in the U.S. is expected to grow from the current 34 million, or 12% of the U.S. population, to 61 million, or 18% of the projected U.S. population.

Mainstream advertisers so far have spent little to reach this population, with Hispanic Business magazine estimating that only 2% of total U.S. advertising spending goes to reaching Hispanics, but Brady says that's starting to change. Mainstream advertisers like Procter & Gamble, Colgate and General Motors are advertising on Univision because they realize the significance of the market, he says.

Gordon Hodge, a partner with Thomas Weisel, believes that the growth of the Hispanic population -- Census figures have it growing nearly 6.5 times the rate of the rest of the population over the next 24 years -- gives Univision "a ratings increase bias." He reasons that even if Univision doesn't remain the No. 1 network, it should still be able to deliver strong audience numbers.

Some Like It Hot While the number of funds holding UVN is small, it has increased since last year
Date	Number of Domestic Equity Funds Owning UVN	Percent of Domestic Equity Funds Owning UVN
Jan. 1, 2000	175 out of 2,648	6.6%
Jan. 1, 2001	233 out of 2,911	8%
Source: Morningstar

Still, not everyone is shouting "Yo quiero Univision!"

UVN is currently down 9.6% for the year, according to Morningstar, with Stein Roe's Brady attributing its decline to the weaker economy and soft ad sales.

Also, UVN's lofty P/E ratio concerns even some managers who hold Univision, including David Kaslow, a senior portfolio manager who has a 1.89% stake of his $406 million (NEGRX Quote)Nations Midcap Growth fund in UVN. "Hispanic media stocks are still in the stratosphere," concurs Hodge.

For its part, the company, which met fourth-quarter estimates of 15 cents a share this past Monday, said it expects revenue growth to be between 12% and 17% for 2001, despite slower growth in the first quarter.

On the earnings call, Andrew Hobson, an executive vice president with Univision, said that even if ad industry revenues don't pick up significantly by the second half of the year, Univision's ratings dominance should insulate it from the soft ad sales expected for 2001.

Merrill Lynch analyst Jessica Reif Cohen disagrees. "The Spanish-language marketplace is not wholly insulated, especially from weakness in the domestic automotive, telecom and budget retail advertising categories," which should be weak at least through the first half of 2001, Reif Cohen says.

The strength of Univision's programming is also of concern to some. Univision recently signed deals for boxer Oscar de la Hoya and the 2002 and 2006 World Cup soccer games, and is still a big draw among Hispanic women with its melodramatic "novelas rosas" from Mexico's Televisa. But competitor Telemundo recently imported several noteworthy soap operas of its own that are creating a big buzz in the Latin American community, says Wayne Friedman, L.A. bureau chief of Advertising Age.

On the other hand, David W. Miller, an analyst with Sutro & Co., says that while Telemundo has created momentary buzz over some of its programs, particularly Betty, la Fea, Telemundo has never done more than create momentary interest in some of its programs.

Miller also notes that it will be critical for Univision to continue to make major strategic acquisitions along the lines of USA Broadcasting, which Univision spent $1.1 billion to acquire last December, Miller adds. The acquisition brings 13 stations in such key markets as New York, Los Angeles and Miami to Univision's stable, for a total of 19 owned and operated stations, 33 affiliates and 1,093 cable stations. To remain dominant, Univision will need to make similar acquisitions in the future, Miller says.

Meanwhile, Brady of the Stein Roe Capital Opportunities fund is confident Univision has the leadership to keep it at the top of the charts. "Univision has outstanding management that has proven it can guide the company through rapid growth, rather than blowing up," Brady says.

Ole! These funds have made big commitments to Univision
Fund	Total % of Fund	Date of Portfolio Report
(TWQAX Quote)Touchstone Equity	4.32%	Nov. 30
(HRCPX Quote)Heritage Capital Appreciation	3.79	Dec. 31
(EEICX Quote)Expedition Equity Institutional	3.57	July 31
(JORNX Quote)Janus Orion	3.13	Oct. 31
(SEFAX Quote)Security Select 25	3.12	Sept. 30
Source: Morningstar

No Mas These funds sold big stakes in Univision last year
Fund	Shares Sold	Date of Portfolio Report
(PNOPX Quote)Putnam New Opportunities	780,000	June 30
(JGORX Quote)Janus Adviser Growth	357,000	Aug. 31
(JGRTX Quote)Janus Adviser Aggressive Growth	256,000	Aug. 31
(JABRX Quote)Janus Adviser Balanced	208,000	Aug. 31
(PVOYX Quote)Putnam Voyager	132,000	June 30
Source: Morningstar