Market Overview

Kansas City Southern, The Growth Stock

Share:
Kansas City Southern, The Growth Stock
Related KSU
Introduction To Precision Railroading, Part 1: The Industry's Savior Or Villain, Take Your Choice
Earnings Scheduled For October 19, 2018

Bank of America Merrill Lynch said in a note valuation of Kansas City Southern (NYSE: KSU) looks good for growth potential. The firm upgraded the shares of the company and lifted the price target.

The rating on Kansas City Southern shares now go to Buy from Neutral and the price target from $113 to $116.

Analysts Ken Hoexter and Ariel Rosa noted that Kansas City Southern shares have been hit in recent times by a trend of negative news, including Luminent shutting its largest coal plant on the company's network, the ongoing NAFTA negotiations and the recent hurricane impacts.

The analysts indicated that the company's shares now trade at a 4-percent discount to its historical P/E, which is a large discount relative to peer Class I rails' 25-percent premium valuation over their historical average P/E's.

See also: A Railroad Pair Trade: Kansas City Southern Vs. Union Pacific

"We believe KSU has one of the best growth prospects compared to the other rails (after adjusting for a coal plant shutdown), as Mexican energy reform and manufacturing growth, particularly in autos, support better-than-average growth," the analysts said.

Additionally, BofA Merrill Lynch believes the 18.4 times multiple at which Kansas City Southern stock currently trades is in line with the rail group average but fails to reflect the potential. The firm believes NAFTA negotiations and Mexican regulatory overhangs should abate, as issues move to their natural conclusion over the next few months.

At the same time, the firm believes construction in the hurricane-impacted Gulf Coast will likely boost industrial, auto and chemical volumes, as the region works to rebuild post storms.

Net-net, the firm feels the company's shares deserve to trade at a premium to its peer group, given the growth potential and as estimates are compressed, given a customer plant closure.

To account for hurricane impact, the firm lowered its volume target for the third quarter but expects acceleration in the fourth quarter, catching up on some lost third-quarter volume. The firm also lowered its third quarter, 2017 and 2018 earnings per share estimates by 5 percent, 1 percent and 3 percent, respectively to $1.32, $5.15 and $5.65.

Latest Ratings for KSU

DateFirmActionFromTo
Nov 2018CitigroupMaintainsBuyBuy
Oct 2018BMO CapitalMaintainsOutperformOutperform
Oct 2018Seaport GlobalUpgradesNeutralBuy

View More Analyst Ratings for KSU
View the Latest Analyst Ratings

Posted-In: Analyst Color Long Ideas Upgrades Price Target Travel Analyst Ratings Trading Ideas General Best of Benzinga

 

Related Articles (KSU)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
LXFTKeyBancDowngrades0.0
CPAImperial CapitalDowngrades68.0
PRMWImperial CapitalInitiates Coverage On18.0
TGTKeyBancInitiates Coverage On110.0
QCOMMorgan StanleyUpgrades0.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Lloyds And RBS Named The Best UK Bank Stocks

Dow Jones Newswire Sends False Google-Apple Merger Story; DJ Calls It 'Technical Error'