Railroad operators like Kansas City Southern (KSU – Analyst Report) have been operating in a difficult environment for quite some time now. Commodity prices have been weak, while concerns over a strong dollar have also dulled foreign demand.
We saw just this trend in KSU’s recent earnings report as the company met estimates, but struggled to match up to revenue expectations thanks in large part to their commodity business. In fact, for the Q2 report investors saw energy revenues crash 46% year-over-year, while agricultural and minerals were down about 9% (yoy) too. Shares of KSU are down about 10% in the past six months thanks to this bearish trend, but there could actually be more pain ahead for KSU in the near future.
This poor stretch could definitely have some more room if you look to recent earnings estimates for KSU. The trends for both the current quarter and the current year have been decidedly lower and are pushing current consensus estimates into EPS contraction territory when looking at year-over-year figures.
The magnitude of these estimate changes has also been pretty intense as the current quarter figures have fallen from $1.33/share to $1.21/share in the past month, while we have seen a slide from $4.74/share to $4.48/share for the current year over the same time frame.
With this kind of pressure on earnings estimates, it shouldn’t be surprising to note that KSU has a Zacks Rank #5 (Strong Sell). That means we are looking for more underperformance from this company and really the industry at large in the near term too.
If that wasn’t enough KSU doesn’t exactly have great metrics on the growth or value fronts either. The stock has a ‘C’ grade for growth and an ‘F’ grade for value, largely thanks to its higher-than-average forward PE and weaker than industry readings on projected sales growth and projected EPS growth.
If you are looking for a top pick in the transportation sector, it may be time to go beyond the railroad segment. The shipping industry, with its top 20% rank, is definitely a place to seek out great stocks. In particular, Teekay (TK – Snapshot Report) is a compelling selection as it has a Zacks Rank #1 (Strong Buy) along with expected double digit EPS growth this year.
So don’t take a ride on the rails right now and instead set sail for the high seas. Your portfolio will likely thank you as the earnings estimate revision trend is definitely favoring the shipping world over the rails right now.
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