Kansas City Southern
Kansas City Southern (KSU) stock has gained ~25.7% YTD (year-to-date). The stock has outperformed the broader market as of June 10. The S&P 500, the NASDAQ, and the Dow Jones Industrial Average have risen 15.2%, 17.9%, and 11.7%, respectively. Kansas City Southern’s YTD gain is also much higher than the iShares Transportation Average ETF’s (IYT) returns. IYT, which invests in US transportation stocks, has gained 11.9% in 2019.
The stock also outpaced most of its Class I railroad peers’ returns. Canadian National Railway (CNI) and Union Pacific (UNP) have registered gains of 22% and 24.7% YTD (year-to-date), respectively. Norfolk Southern (NSC) is the highest gainer with a return of 34.7% YTD.
The optimism surrounding Kansas City Southern stock is mainly due to its strong financial performance for back-to-back quarters. The railroad has beat analysts’ earnings estimates in the last five quarters. The company has marked double-digit YoY (year-over-year) growth.
Investors are optimistic about the implementation of Kansas City Southern’s PSR (Precision Scheduled Railroading) system. The PSR system is already having a positive impact. During Kansas City Southern’s first-quarter earnings release on April 17, it stated that the system helped lower costs and improve operational efficiency. Kansas City Southern’s operating ratio contracted by 160 basis points YoY to 64.2% in the first quarter.
The company’s rail traffic volumes have boosted investors’ confidence in its stock. According to Kansas City Southern, its carload volumes grew 9.8% YoY in the first quarter.
Will the rally continue?
Although Kansas City Southern stock has gained significantly in 2019, analysts still see considerable upside potential in the stock. The analysts polled by Reuters have provided a consensus “buy” recommendation on Kansas City Southern.
Approximately 63% of the 19 analysts covering the stock have provided a “strong buy” or “buy” recommendation, while 37% have provided a “hold” rating. The average target price of $133.24 suggests a potential return of 11% over the next year.