CSLA's David Lipschitz initiated Kansas City Southern KSU at Underperform with a 12-month price target of $95.00.
Lipschitz noted truck competition and "contractionary" Mexican growth prospects as two of the major reasons for the Underperform rating. Due to Kansas City Southern's relatively short route network, the CLSA analyst believes KSU was the most vulnerable to truck competition when compared to its major railroad owning peers.
Multiple Contraction
Kansas City Southern's trading premium was "fueled by the accelerating Mexican growth story," but Lipschitz sees "downside risk of multiple contraction if the Mexican economy starts to show signs of cooling down." The cool down would make for disappointing automotive volume growth claims the analyst.
However, Lipschitz did see Mexican energy reform legislation aiding Kansas City Southern's growth in the future and praised the company's "balanced" services among business segments.
Due to the analyst's concerns, Lipschitz estimates 2016 EPS at $4.71 and revenue decreasing 1.9 percent from 2015.
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