KSU - Embedded Expectations Analysis - 2019 05 22
Kansas City Southern (KSU:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 21.6x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management has concerns about revenue growth, their ability to seize business opportunities, and the business environment in Mexico.Specifically, management may lack confidence in their ability to sustain improvements in their operating ratio, cost reduction, and revenue growth. Furthermore, they may be concerned about yard congestion, the execution of the PSR program, and their ability to seize business opportunities. Moreover, they may be exaggerating the demand in train freight, the progress of southbound train consolidation, and their ability to improve Mexican infrastructure. Additionally, they may be downplaying concerns about heavy customer switching in Mexico, and may lack confidence in the sustainability of pricing increases, their ability to manage EPS declines, and their ability to achieve customer and shareholder expectations.
Kansas City Southern is a transportation holding company with domestic and international rail operations in North America. The company's subsidiary, The Kansas City Southern Railway Company, is a United States Class I railroad that serves a several region in the midwest and southeast regions of United States and has north/south rail route between Kansas City, MO and several main ports along the Gulf of Mexico in Alabama, Louisiana, Mississippi and Texas. The company's subsidiary, Kansas City Southern de Mexico, S.A. de C.V. operates a main commercial corridor of the Mexican railroad system and has as its main route a direct rail passageway between Mexico City and Laredo, TX.
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