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Kansas City Southern: A Preview ahead of Its 3Q17 Earnings

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Part 5
Kansas City Southern: A Preview ahead of Its 3Q17 Earnings PART 5 OF 6

How Analysts See Kansas City Southern ahead of 3Q17 Results

Analyst recommendations

A total of 19 analysts are covering Kansas City Southern (KSU). Three of them (15.8%) have rated KSU a “strong buy.” Five analysts (26.3%) have recommended a “buy,” and 11 (57.9%) have recommended a “hold.” None of the analysts have recommended a “sell.”

How Analysts See Kansas City Southern ahead of 3Q17 Results

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Peer recommendations

Norfolk Southern (NSC), an Eastern US major railroad, has 33.0% “buy” recommendations from analysts surveyed by Thomson Reuters. The company’s prime rival, CSX (CSX), has “buy” recommendations from 74.0% of analysts. Union Pacific, a dominant Western US carrier, has been rated a “buy” by 45.0% of analysts.

Canadian National Railway (CNI) has 26.0% of its analysts recommending a “buy” for the stock. CNI’s competitor Canadian Pacific (CP) has “buy” ratings from 74.0% of its analysts. Genesee & Wyoming (GWR), the largest US short-line operator, has “buy” recommendations from 58.0% of its analysts.

Why a ‘hold’ recommendation for KSU?

Although the short-term business outlook for Kansas City Southern may not look bright, its long-term outlook could be promising. Additional capacity at the Sanchez Yard and cross-border operating improvements could drive KSU’s performance going forward.

An improvement in KSU’s southbound traffic was mainly due to the additional capacity in the Sanchez Yard. This additional capacity facilitated the arrival of more trains directly into the yard without affecting network fluidity.

The company serves 11 of the 12 automotive manufacturers in Mexico. Considering the robust growth in Mexican auto production, KSU could benefit. Recently, the company laid six miles of double track in the Celaya area to support fluidity in the automotive sector. It also created a new 10,000-foot siding in the Port of Lázaro corridor.

For KSU, the full impact of Mexican energy reforms could be realized over the next two years. This smallest Class I railroad could move more shipments of refined products, fractionating sand, LPG (liquefied petroleum gas), and crude oil (UGAZ) going forward. 

In the next and final part of this series, we’ll value Kansas City Southern against its peers.

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