The sharp upward move over the past two days in Televisa (TV) based on their better than expected earnings and the subsequent Merrill upgrade from Neutral to Buy is significant for these reasons:
The better than expected quarter was due to higher than expected election spending and cost cutting (the same recipe that has propelled RC back to financial health). This election was no secret, nor was the spending. But what is interesting and noteworthy is that the market reacted like it did, telling us that it DOES care about short term earnings results. Merrill's reasoning for upgrading Televisa is telling as well: "Second quarter 2003 results were strong across the board and ahead of our above consensus estimates, supporting our view that Televisa will have strong earnings momentum through at least fourth quarter 2003," wrote in a research note analyst Whitney Johnson. What's good for television is even better for radio.
As irrational as it is to base an opinion on a broadcaster on one quarter's results, the reality is this: people chase these broadcasters up during cyclical upturns, and punish them during downturns and recessions. It's just the way it is. And what is happening to TV will be far more pronounced in RC, because as a spot ad medium, RC benefits far more from cyclical upturns, and feels the pain worse during the downturns. So when TV is getting significant benefits from mexican ad spending, you can bank on the fact that RC is benefitting even more so.
What's happening right now should be obvious (but it never is): a renewed focus on dirt cheap mexican broadcaster properties, which in turn will inflate their stocks, which in turn will fuel acquisitions, which in turn will put RC back in play in the $18 range. The numbers RC will announce will also jolt the valuation metrics; the average joe doesn't see past the past two quarters or so, and what this quarter will be is the final brushstroke that makes this picture very clear.