Kansas City Southern: Buy Alert

Kansas City Southern’s (KSU) share price has been in rally mode for the past month, as this rail shipper continues to benefit from strong demand created by higher fuel prices. The company’s second-quarter results, reported on July 31 were excellent, providing fundamental strength to support a higher share price.

Kansas City Southern, through its subsidiaries, provides domestic and international rail transportation services in the United States and Mexico. The company was founded in 1962, has a market cap. of $4.7 billion and is headquartered in Kansas City, Missouri.

Second-Quarter Results

Keeping pace with the rail industry trend of strong demand and higher earnings, Kansas City Southern reported impressive second-quarter results on July 31.

Revenue was up 14% from last year to $496.2 million. Net income came in at $50.5 million, up from $25.3 million last year. This produced earnings of 56 cents per share, easily outpacing analyst estimates of 44 cents per share.

A History of Surprising

This is the fourth time in the last four quarters that Kansas City Southern has surprised and beaten analyst estimates, having done so by an average of 10 cents, or 24.2%.

The company noted that its revenue growth was driven by strong demand from commodity producers, with a 20% increase in shipments from chemical and petroleum producers. Kansas City Southern also said that it was able to secure higher shipping rates and pass along much of it higher fuel costs to its customers.

Estimates Continue to Advance

With demand surging because of the cost effectiveness of rail shipping, analysts have been quick to boost their earnings projections. The current-year estimate has increased to $2.17 per share, up from $1.99 per share 90 days ago.

The Chart

Shares of KSU have been rallying after bottoming out below $41 on July 3. Since then, this stock has been surging, recently topping off above $55, a new 52-week and all-time high. Take a look at the chart below.

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