UPDATE: Bank of America Downgrades Kansas City Southern to Neutral on Expected Shares Breather

In a report published Monday, Bank of America analyst Ken Hoexter downgraded the rating on Kansas City Southern KSU from Buy to Neutral, but reiterated the $113.00 price target. In the report, Hoexter noted, “We are lowering our rating on Kansas City Southern's shares to Neutral from Buy, as the shares are (1) up 29% year-to-date, (2) trading at 26x our 2013 EPS estimate, above its normal 6.5 pt gap to rail group average, and (3) within 5% of our $113 price objective. Nevertheless, we recognize that Kansas City Southern remains one of the best long-term growth stories among the transports, particularly with the addition of two new grain elevators on its network in 2H13, four new auto plants on its Mexico network between 3Q13-4Q14, near-sourcing manufacturing trade shifts, the potential to move Bakken and Canadian oil sands crude, and its benefits from the continued conversion of cross-border intermodal. However, given the strong share performance, our sub-consensus EPS target this quarter due to lost export grain carloads, relatively stretched P/E multiple, and limited upside to our target, we believe the shares are likely to take a breather following the strong year-to-date performance.” Kansas City Southern closed on Friday at $107.21.