Credit Suisse Downgrades Kansas City Southern, Says 'Inflection Point Not Visible'

In a report published Friday, Credit Suisse analysts downgraded the rating on

from Outperform to Neutral. The price target was lowered from $118 to $101, following lower base year EBIT and higher discount rate. Although the stock has outperformed over 20 percent year-to-date, the analysts expressed their confidence in the company's long-term secular growth potential, with a number of opportunities visible for the next several years. "However, we don't see a compelling reason to own the stock for the next 3-6 months," the analysts said. The analysts also expressed concern regarding the company's performance in the short term, given its "idiosyncratic service issues" that are affecting Kansas City Southern's core growth segments, which are currently tracking in-line with or slightly below the industry average. According to the report by Credit Suisse, "This is a paramount concern for us, as secular cross border US/Mexico growth has been the central tenet of our positive thesis on the stock - before the energy boom, and after." The EPS estimates for FT15, FY16 and FYT17 have been reduced from $5.12, $6.03 and $6.94 to $4.68, $5.63 and $6.48, respectively. The analysts believe that it would be difficult for the company to generate margin expansion and earnings growth in 2015.