Kansas City Southern (KSU) — This transportation holding company has railroad investments in the United States, Mexico and Panama, covering 6,660 route miles.
In its recently reported third quarter, revenue increased 9% year over year to $678 million, above the consensus estimate of $672 million, thanks to a spike in demand from grain producers. Earning also beat estimates, rising 17% to $1.29 per share.
S&P Capital IQ said increased shipments tied to two new auto assembly plants in Mexico should help boost full-year 2014 revenue 9.5%. And with the rail company capturing more cross-border traffic, its analysts forecast revenue will increase another 10% in 2015.
They estimate earnings will rise from $3.94 in 2013 to $4.73 in 2014 and $5.48 in 2015. Capital IQ has a “buy” rating on shares with a 12-month price target of $153.
Since February, KSU stock has been trading in a very predictable channel with support at its 50-day moving average. In early August, it executed a golden cross. This very bullish signal occurs when the 50-day moving average crosses up through the 200-day moving average.
This was followed by a reverse head-and-shoulders formation that developed over three months. After the market bottom in October, buying volume increased as it formed the bottom of the pattern. A break of the neckline at $123 targets a move to $135. Shares are also close to breaking their all-time high just below $126, made in November 2013, which is another positive.
This is my favorite rail stock, and it deserves a higher price and P/E multiple. It currently trades at 22.6 times next year’s earnings. Investors should purchase KSU stock as a cornerstone holding in the transportation sector.
