Market Overview

Kansas City Southern's Growth Outlook Brighter Than Some Of Its Peers

Kansas City Southern's Growth Outlook Brighter Than Some Of Its Peers

BMO Capital Markets has maintained its Market Perform and $98 price target on Kansas City Southern (NYSE: KSU), saying the company has a better volume visibility versus class 1 peers heading into 2017 despite higher costs driving a third-quarter earnings miss.

The company’s third-quarter EPS fell 7 percent to $1.12, about 5 percent below BMO/consensus estimates of $1.18. Revenues were largely in line with BMO expectations, as stronger industrial and bulk revenues offsetting weaker-than-expected autos.

“We sense that company has further operational cost-saving opportunities, which can drive very high 40 percent incremental operating margins. This should support low-double-digit EPS growth in 2017,” analyst Fadi Chamoun wrote in a note.

However, the analyst cut his fourth-quarter EPS estimate to $1.19 from $1.27 and 2017 view to $5.01 from $5.21.

Related Link: Kansas City Southern Helping Rails Regain Their Mojo

Chamoun cited “more moderate pace of productivity improvements over the coming year and lower revenue/carload in the automotive sector reflecting shorter average length of haul” for the estimate cut.

“We would consider a higher valuation multiple if the growth outlook improves beyond the low-double-digit level we currently expect and/or the margin of safety in valuation improves further,” Chamoun added.

At the time of writing, shares of Kansas City Southern were up 0.58 percent to $93.12.

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Latest Ratings for KSU

Apr 2019MaintainsStrong BuyStrong Buy
Apr 2019MaintainsBuyBuy
Apr 2019MaintainsEqual-WeightEqual-Weight

View More Analyst Ratings for KSU
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