What is KSU's Next Move Following All-Time Highs?

Kansas City Southern stock is up 36% in 2021

Sep 30, 2021 at 10:35 AM
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Kansas City Southern (NYSE:KSU) is a transportation holding company that has railroad investments in the U.S., Mexico, and Panama. KSU's primary U.S. holding is The Kansas City Southern Railway Company, serving the central and south-central U.S. Its international holdings include Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50% interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal.

Yesterday Kansas City Southern announced that the company will release its third-quarter financial results before the open on Tuesday, Oct. 19. In recent history, KSU has beat earnings expectations on just one of the last four earnings reports released. The last time that KSU outperformed Wall Street's earnings expectations was for Q3 of 2020. Analysts expect that the railroad company’s EPS will increase to $2.31 in the upcoming earnings report.

Kansas City Southern stock has increased about 51% in price year-over-year and is up 36% year-to-date. Despite a bull gap in early August, the stock is still a ways away from its all-time high of $315.39, reached in mid-May. Support at the $270 level and the 160-day moving average have emerged, however. Moreover, Kansas City Southern offers a forward dividend of $2.16 and a dividend yield of 0.79%.

From a fundamental perspective, Kansas City Southern stock is flat-out overvalued. Although KSU’s forward price-earnings ratio of 26.45 is a big improvement over its current price-earnings ratio of 193.27, it is still very high for the figures the railroad holdings company has produced in recent years. Since fiscal 2017, Kansas City Southern's revenues have only increased 7%. In addition, KSU's net income has declined a massive 87% since fiscal 2017. In general, Kansas City Southern stock is struggling fundamentally, with total debt coming at $3.84 billion and cash total at only $188.2 million. Overall, KSU does not seem to be showing signs of a recovery, which makes the stock a potential short option.

 

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