What Wall Street Thinks On Kansas City Southern's Q1 Results

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Wall Street, in general, have put out a positive opinion on Kansas City Southern
KSU
after the freight rail transportation services provider reported strong first quarter results as the company offset the impact of flooding with cost controls and operating efficiencies. Missouri-based company reported adjusted EPS of $1.03 per share, topping Street view of $0.97, while $562.7 million revenue missed consensus estimate of $566 million. The railroad company posted operating ratio of 66.6 percent, compared with 70.5 percent in first quarter 2015. Overall, carload volumes fell 5 percent from last year. JPMorgan maintained its Overweight rating on Kansas City Southern and raised price target to $105 from $96, saying that the two quarters of operational improvement adds another gear to the earnings growth story at KSU. "Improving volumes with minimal headcount supports 2016 EPS growth and we remain positive on KCS's exposure to Mexico which is inherently accretive to overall profitability," analyst Brian Ossenbeck wrote in a note. Ossenbeck noted that the regulatory shifts in Mexico next year should facilitate import of refined products by rail while materially lower industrial power prices support near shoring. "Mix shift remains a key component of our rail investment framework and we estimate the impact continues to prove far less detrimental for KCS than peers based on our unique indicator," the analyst added. Citi also maintained its Buy rating saying this growth, with more new business opportunities in 2017, makes KCS a standout among the rails. "..as such we believe further upside is likely as estimates move higher," said analyst Christian Wetherbee who increased the price target $108 from $91. However, Ravi Shanker of Morgan Stanley said expectations are on the higher side and core pricing of 3.8 percent missed his estimate of 4.0 percent and declined 30bp sequentially. The analyst kept his Equal Weight rating unchanged, but raised the price target by $7 to $83. The analyst now sees 2016 EPS of $4.70. Though Shanker acknowledged Mexico prospects and KSU "will likely see amongst the highest EPS growth among Rails in FY17," he said the stock trading over 20x PE, is "comfortably the most expensive as well." "We find it hard to see how the stock keeps working unless the market has reason to believe that FY17/18 EPS needs to move meaningfully higher. However, we fear expectations may be too high already," Shanker noted. Cowen raised its 2016 and 2017 EPS estimates to $4.60 and $5.20, respectively, from $4.45 and $5.15. The brokerage also increased price target to $99 from $88. However, analyst Jason Seidl reiterated Market Perform rating on the stock due to uncertainty in near- to medium-term outlook due to coal and crude. However, Seidl noted that "the stock may become attractive to patient investors." In addition, Bank of America has upgraded Kansas City Southern to Buy from Underperform, while raising the price objective from $77 to $160. Read more: http://www.benzinga.com/analyst-ratings/analyst-color/16/04/7861555/bank-of-america-upgrades-kansas-city-southern-to-buy-fol#ixzz46T67pB1A Shares of KSU were up 0.20 percent to $96.68.
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Posted In: Analyst ColorEarningsNewsUpgradesPrice TargetReiterationAnalyst Ratings
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