KSU outperformed the broader market

Kansas City Southern (KSU) stock has risen ~23.6% YTD (year-to-date), outperforming the broader market as of April 16. The NASDAQ, the S&P 500 Index, and the Dow Jones Industrial Average have risen 20.6%, 16%, and 13.4%, respectively, in comparison.

The stock also outperformed the returns of the majority of its Class I railroad peers (IYT). Union Pacific (UNP) and CSX (CSX) have registered YTD gains of 21.5% and 22.1%, respectively. Norfolk Southern (NSC) is the highest gainer with a YTD return of 29.2%.

Where Kansas City Southern Stock Could Be Heading

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The optimism surrounding KSU is primarily attributable to its back-to-back quarters of better-than-expected results. Kansas City Southern has surpassed earnings estimates in all of the trailing four quarters and has marked double-digit YoY (year-over-year) growth.

Kansas City Southern’s rail traffic volumes have bolstered investors’ confidence in its stock. According to the company, it registered a 9.8% YoY increase in carload volumes in the first quarter.

Will the rally continue?

Although Wall Street analysts have provided a consensus “buy” recommendation on Kansas City Southern stock, they don’t see much upside potential in its price. Their consensus target price of $126.82 suggests a potential one-year return of 7.5%.

Of the 19 analysts covering Kansas City Southern stock, four have given it “strong buy” recommendations, eight have given it “buy” recommendations, and the remaining seven have given it “hold” recommendations.

Kansas City Southern is currently trading at a premium valuation to the industry average. The stock’s PE ratio of 19.90x is higher than the industry average of 16.90x. KSU’s top peers Norfolk Southern and Union Pacific have PE multiples of 20.29x and 21.19x, respectively.

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