What Wall Street Thinks Of Kansas City Southern's Q1 Results

Wall Street, in general, have put out a positive opinion on Kansas City Southern (NYSE: KSU) after the freight rail transportation services provider reported strong first-quarter results as the company offset the impact of flooding with cost controls and operating efficiency.

The Missouri-based company reported adjusted EPS of $1.03 per share, topping Street view of $0.97, while $562.7 million revenue missed the consensus estimate of $566 million.

The railroad company posted operating ratio of 66.6 percent, compared with 70.5 percent in first quarter 2015. Overall, carload volumes fell 5 percent from last year.

JPMorgan

JPMorgan maintained its Overweight rating on Kansas City Southern and raised price target to $105 from $96, saying that the two quarters of operational improvement adds to the earnings growth story.

"Improving volumes with minimal headcount supports 2016 EPS growth and we remain positive on KCS's exposure to Mexico which is inherently accretive to overall profitability," analyst Brian Ossenbeck wrote in a note.

Related Link: Bank Of America Upgrades Kansas City Southern To Buy

Ossenbeck noted that the regulatory shifts in Mexico next year should facilitate the import of refined products by rail, "while materially lower industrial power prices support nearshoring."

"Mix shift remains a key component of our rail investment framework and we estimate the impact continues to prove far less detrimental for KCS than peers based on our unique indicator," the analyst added.

Citi

Citi also maintained its Buy rating saying this growth, with more new business opportunities in 2017, makes Kansas City Southern a "standout among the rails."

"[A]s such we believe further upside is likely as estimates move higher," said analyst Christian Wetherbee who increased the price target $108 from $91.

Morgan Stanley

However, Ravi Shanker of Morgan Stanley said expectations are on the higher side and core pricing of 3.8 percent missed his estimate of 4.0 percent and declined 30bp sequentially. The analyst kept his Equal Weight rating unchanged, but raised the price target by $7 to $83. The analyst now sees 2016 EPS of $4.70.

Alhough Shanker acknowledged Mexico's prospects and that Kansas City Southern "will likely see amongst the highest EPS growth among Rails in FY17," he said the stock trading over 20x PE, is "comfortably the most expensive as well."

"We find it hard to see how the stock keeps working unless the market has reason to believe that FY17/18 EPS needs to move meaningfully higher. However, we fear expectations may be too high already," Shanker noted.

Cowen

Cowen raised its 2016 and 2017 EPS estimates to $4.60 and $5.20, respectively, from $4.45 and $5.15. The brokerage also increased price target to $99 from $88. However, analyst Jason Seidl reiterated a Market Perform rating on the stock due to uncertainty in near- to medium-term outlook due to coal and crude.

However, Seidl noted, "The stock may become attractive to patient investors."

Bank Of America

In addition, Bank of America has upgraded Kansas City Southern to Buy from Underperform, while raising the price objective from $77 to $160.

Shares of KSU were trading flattish at $96.39 at time of writing.