Buckingham Ups Kansas City Southern Earnings Forecast Because Of This

Buckingham Research has raised its 2016 earnings forecast for Kansas City Southern

by $0.11 on higher chemical, grain and auto volumes. Analyst Jeffrey Kauffman upped the EPS estimate for 2016 to $4.61 from $4.50. However, the analyst's 2017 EPS view remains at $5.15. Kauffman's estimates are above the Street's consensus that calls for earnings of $4.54 a share for 2016 and $5.12 a share for 2017. Kansas City, Missouri-based KSU provides freight rail transportation services. The company operates north/south rail route between Kansas City, Missouri, and various ports along the Gulf of Mexico in Alabama, Louisiana, Mississippi, and Texas. The company gets about 50 percent of its profits from Mexico, which is expected to grow faster than the U.S. economy. However, the analyst maintained his Neutral rating saying "new labor concessions and a reduction of variable costs should allow for margin expansion in forward quarters, but we don't yet have incremental conviction that other volume growth drivers will re-accelerate until 2017." The analyst also said the company is facing near-term headwinds including lower fuel costs, a weaker Mexican peso, and softness in energy-related markets. Though Kauffman hiked the price target on KSU shares by $9 to $87, it still implies a downside of 4.5 percent from Thursday's close. "The increase in price target is 2% from our EPS increase and 9% from an increase in the S&P P/E multiple, which we use is our relative P/E valuations for railroads," Kauffman wrote in a note to clients. Commenting on the industry consolidation, the analyst said he believes that KSU could be an "attractive addition to another major railway," and is a long-term possibility. However, he stated that it is not a reason to own the shares today. Meanwhile, Kansas City Southern will announce its first quarter numbers on April 19, 2016, before the opening of trading on the New York Stock Exchange. Analysts expect earnings of $0.97 a share on revenue of $565.58 million. Shares of Kansas City Southern were up 0.73 percent to $91.83. They have gained 23 percent this year.