Has Kansas City Southern Topped at $57?
July 5th, 2011 | by Alexander Zepps |
The shares of Kansas City Southern’s (KSU), which I first discussed here on July 29, 2009, at a price of $19.66, have broken through major, psychological resistance at $50. Now may be a good time to consider taking some profits, if you’re in near $20.
However, those investors who can tolerate the risk can maintain their full position in KSU, but keep in mind the journey to $70 may not be completed in 2011.
I’d also raise the sell/stop loss to $29 from $19.40 at this stage.
Kansas City Southern’s 2011 revenue should increase 10% to 12%, followed by a roughly 8% to 10% rise in 2012, propelled higher by the global recovery in finished goods trade and by the uptrend in commodity transport.
Those who are familiar with the U.S. transport infrastructure know that the rails are in the catbird seat. Railroads like Kansas City Southern are in a very good spot, from a commercial standpoint. The nation’s inadequate, congested interstate highway system suggests a bottleneck plagued, high-cost road transportation network in the years ahead. That road transport system is also dependent on oil. Crude, currently trading above $100 per barrel, despite a high U.S. unemployment rate, shows little sign of falling below $60 per barrel in the near future.
Further, Kansas City Southern’s utilization rate should rise in 2011, and pricing power (rate increases on expired contracts) should improve, as well. Kansas City Southern has operations in the U.S. (about 60% of FY2010 revenue) and Mexico (about 40% of FY2010 revenue), including 6,000 miles of track.
The Thomson Reuters First Call FY2011/FY2012 EPS estimates for Kansas City Southern are $2.73 to $3.30, and each looks about 5% low, according to my analysis.
Technically, as noted, KSU has cleared major, psychological resistance at $50, and there is scope to $70.
2011 Outlook: I view Kansas City Southern as a long-term play, but if you’re looking to sell KSU within the year, it’s probably best to take your profits after it rises to $67 to $69, if it fails to clear $70.
Stock Analysis: I consider Kansas City Southern to be a moderate-risk stock. If an investor has already purchased the company’s shares, I’d hold them. If not, I’d consider buying a 25% position in KSU now; I’d put a sell/stop loss at $37.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
Tags: City Southern, Kansas City, Kansas City Southern, Southern
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