Kansas City Southern: Zacks’ Bear of the Day Play

Kansas City Southern (KSUAnalyst Report) recently withdrew its 2015 revenue and volume guidance as it struggles with the duel impact of an energy slowdown and the stronger dollar. This Zacks Rank #5 (Strong Sell) is now expected to grow earnings by just the low single digits in 2015.

Kansas City Southern, which is headquartered in Missouri, operates a north-south railroad system from the United States down into Mexico.

Internationally, its holdings include Kansas City Southern de Mexico, which serves the northeastern and central parts of Mexico, including the important port cities of Tampico and Veracruz. It also has a 50% interest in Panama Canal Railway Company.

Withdrew 2015 Guidance

On May 14, Kansas City Southern surprised Wall Street by withdrawing its 2015 revenue and volume guidance due to uncertainties surrounding the energy industry, US fuel prices and currency translation impacts.

The company has big hubs and business in Mexico where the pesos has been weak.

In the first quarter, while revenue grew 4%, energy revenue fell 15% due to reduced utility coal shipments and lower natural gas prices.

Agriculture and Mineral revenue also declined by 7% compared to 2014 due to a decline in grain shipments compared to a strong first quarter a year ago.

Analysts Cut Estimates

As a result of the withdrawal of guidance, the analysts have slashed 2015 estimates.

9 estimates have been cut in the last 60 days, pushing the 2015 Zacks Consensus Estimate down to $4.92 from $5.41.

That is earnings growth of just 2.1%.

2016 estimates have also been cut but earnings are expected to rebound by 15%.

Kansas City Southern is expected to report second quarter earnings on July 17.

Shares Sink

Shares sunk to a new 52-week low after the company withdrew full year guidance.

They’re down 22.6% year to date.

But if you’re thinking you’re getting a screaming deal, think again. Kansas City Southern still trades with a forward P/E of 19.1 which is above that of the S&P 500 which is averaging just 18x.

All of the railroads are having similar difficulties. Estimates are being cut on the entire group. It ranks in the bottom 7% of the Zacks Rank Industries.

But if you must buy a railroad right now, you might want to think Canadian. Canadian National Railway (CNIAnalyst Report) and Canadian Pacific Railway (CPAnalyst Report) are both Zacks Rank #3 (Holds).

[In full disclosure, the author of this article owns shares of KSU.]

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.


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