Univision (NYSE:UVN) was in the news yesterday after receiving an upgrade by an analyst. The Motley Fool, as you all know, doesn't take the assessment of Wall Street at face value. Instead, we have always promoted free thinking and individual digging when it comes to choosing investments. With that in mind, let's see what this media concern may have to offer a long-term portfolio.

By now, you probably know that we'll be checking out the amount of free cash flow that the company has generated over the last few years. Fools are big on free cash flow as opposed to earnings numbers, because earnings per share take into account non-cash charges. These charges are important to know because they give an investor an idea of where money is spent and how it's affecting overall value.

But in the end, it's the free-cash generation that drives the most value for a shareholder. Think "dividends," because dividends come from free cash (or at least, they should come from free cash, and not debt).

The 2004 annual report shows that Univision is doing well in terms of growing operational cash flow and keeping free capital expenditures at a comfortable level. Subtracting capital expenditures from operating profits is the general definition of free cash.

However, in this case, I'm also going to take acquisitions into consideration, since the quantity of dollars expended for this pursuit has been significant (in fact, they're much higher than capital expenditures).

The following table shows the relevant data for the last few years (numbers in thousands):




Net cash from operations








Capital expenditures




Free cash flow



- $616,260

The year 2002 saw a very large monetary outlay for acquisitions, enough to absorb up all the free cash plus a whole lot more. However, if you look at the trend of operational cash flow, it seems those acquisitions are paying off. Indeed, while operating profits are on the rise, acquisitions have traveled in the reverse direction. The latest quarterly report, however, does show that the nine-month free cash flow figure is down almost 36% from last year (numbers also in thousands).

Nine months
ended Sept. 30, 2005

Nine months
ended Sept. 30, 2004

Net cash from operations






Capital expenditures



Free cash flow



Does this mean you should forget about Univision as an investment idea?

I don't think so. Stepping away from the numbers for a moment, let's think about what the company does: It programs media products to the Spanish-language audience, which is a very valuable and growing demographic. Long term, I think this stock could represent a great investment opportunity, especially for individuals looking to add a little broadcasting to their portfolio.

Having said that, I would, however, look for pullbacks. Why, you ask? Well, the PEG ratio for the stock is pretty high at 1.85. That means the growth rate is not substantially better than the price-to-earnings ratio (ideally, you'd like something closer to 1.00 or less, if possible). And you have to remember that Univision does not pay a dividend, so you don't have the benefit of "free dollar-cost averaging," if you will.

There are risks other than the valuation and lack of yield, as well. Competition in the television industry is fierce. Disney (NYSE:DIS), General Electric (NYSE:GE), Viacom (NYSE:VIA), and News Corp (NYSE:NWS) all have broadcasting properties within their base of assets. In fact, GE owns Univision's main nemesis, Telemundo. So an investor must remember that Univision could end up losing value over time if it fumbles the ball and loses its audience share to any of these behemoths.

Nevertheless, I think Univision is a good idea, especially from the viewpoint of the growth in its target demographic. It's ripe for both your watch list and for more digging. Still, whenever you hear of an analyst upgrade, be skeptical and perform your own due diligence -- you'll always be glad you did.

For more Foolish broadcasts on Univision:

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Fool contributor Steven Mallas owns shares of Disney and General Electric. The Fool has a disclosure policy.