Hispanic Broadcasting

Bright prospects, strong earnings, cheap stock.

Symbol (NYSE): HSP
52-Week Range: $67.50-$18.69
Price on November 2: $29.00
Market Capitalization: $2.8 billion

For much of the nineties, radio stocks played sweet music to investors’ ears. An unprecedented wave of mergers, a robust economy, and booming advertising revenues made many owners and shareholders rich. Dallas’ Hispanic Broadcasting Corporation (HBC) was no exception. The largest Spanish-language radio broadcaster in the United States, HBC owns and operates 47 radio stations—26 in Texas alone—and reaches 8.4 million Hispanic viewers in the United States weekly. The company is mining a rich vein: Hispanics are the fastest-growing demographic group in America in both population and income. Their spending is expected to grow from $350 billion last year to nearly $1 trillion in 2010, and Spanish-language advertising revenues have increased from approximately $952.8 million in 1994 to an estimated $1.9 billion last year, a growth rate substantially higher than that of advertising overall. HBC’s profits, strong through the nineties, have met or exceeded expectations this year.

So why, in view of such strong earnings and rosy prospects, has HBC’s stock been pummeled in the past year from a high of $68 to a low of $18? The answer is that the company appears to be a victim of a broad souring on radio stocks that began earlier this year with stories in Barron’s and elsewhere saying that the broadcasting party was over. But in spite of some softening of ad revenues, the industry is in fairly good shape. And the 70 percent dive in HBC’s stock is so out of tune with both the company’s performance and its dominant position in the market that equity analysts have begun to take notice. Analysts at Morgan Stanley Dean Witter and Banc of America Securities have strong “buy” ratings on the depressed shares and target prices in the low- to mid-$30’s for 2001. And the recent falloff in radio stocks may enhance cash-rich HBC’s acquisition opportunities, wrote Frank Bodenchak, a managing director with Morgan Stanley Dean Witter in New York. Lower valuations for both HBC and Spanish-language television broadcaster Univision Communications (NYSE: UVN) and the emergence of a new competitor in Spanish-language television have analysts speculating on the merits of a merger between HBC and Univision. An obstacle HBC faces, say analysts, is a revenue slowdown in the Los Angeles market, where HBC generated more than 40 percent of its broadcast cash flow.

HBC is the latest incarnation of a Spanish-language radio empire cobbled together by the Tichenor family more than sixty years ago. Former newspaper publisher McHenry Tichenor started in 1940 with a single station (KGBS-AM in Harlingen). He later recognized the growth potential of the Hispanic market and began broadcasting in Spanish in 1954. In 1997 family-owned Tichenor Media System merged with another Spanish-language radio broadcaster, Las Vegas-based Heftel Broadcasting Corporation, to form HBC’s predecessor firm.

Had Tichenor lived to see the results of the 2000 census (he passed away in 1996 at the age of 98)—which showed the Hispanic population rising from 31 million to 40 million in the next seven years—his faith in the future of the market would have been confirmed. Like Tichenor, patient investors may want to place a bet on these demographically enhanced shares, especially at such a low price.

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