Loop Capital maintained its Buy rating and raised its price target by $1 to $115 on Kansas City Southern KSU shares, saying that strong Mexican trend is a tailwind for both earnings and sentiment.
Kansas City Southern, citing third party projections, expects total Mexican automotive production through 2020 to be 53 percent higher than 2016.
"In dollar terms, assuming no change in fuel surcharges and a 2.5% annual increase in revenue per load, KCS' auto revenues would increase from about $188 million this year to $236 million in 2017, and $318 million by 2020," analyst Rick Paterson wrote in a note.
Paterson highlighted that though autos account for only 8 percent of the total company sales, margins are above average.
"[M]ore than 85% of the business is driven by these strong Mexican trends, and therefore this business unit has a disproportionate sentiment impact on the stock. And things are turning positive," Paterson added.
The analyst also raised his EPS estimates for 2016 and 2017 by $0.03 and $0.05 to $4.83 and $5.47, respectively.
Shares of Kansas City Southern closed Thursday at $97.26.
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