Kansas City Southern (KSU), Union Pacific Corporation (UNP), Canadian Pacific Railway Limited (USA) (CP): A Long-Term Play on the Mexican Railroad

Page 1 of 2

In the past twelve months, Kansas City Southern (NYSE:KSU) has experienced significant gains on the market, heading from around $70 per share to $112.60 per share at the time of writing. At the end of 2013, Barron’s featured the company, thinking that Kansas City Southern (NYSE:KSU) could increase by around 20% in the next twelve months. So is Kansas City Southern (NYSE:KSU) cheap or expensive at its current price? Should investors buy the stock now? Let’s find out.

Kansas City Southern (NYSE:KSU)

Leading position in Mexico railroads

Kansas City Southern (NYSE:KSU) is an operator of domestic and international railroads in North America, connecting key markets in the central U.S. with big industrial cities in Mexico. One of its subsidiaries, Kansas City Southern de Mexico, S.A., the key commercial corridor of the Mexican railroad system between Mexico and Laredo, Texas, serves the main industrial cities in Mexico and three big seaports. Many investors might know Laredo, as it carries more than 50% of all rail and truck traffic between the U.S. and Mexico. Moreover, Kansas City Southern (NYSE:KSU) also owns several other railway businesses, including Mexrail, Pabtex and Trans-Serve. Around 24% of the company’s total revenue was generated from the Industrial & Consumer Products market, while the Agriculture & Minerals and Chemical & Petroleum markets each accounted for 18% of the total 2012 sales.

Consistent growth with a reasonable amount of leverage

In the past four years, Kansas City Southern (NYSE:KSU) has experienced consistent growth in its top line and bottom line. Revenue increased from $1.48 billion in 2009 to more than $2.2 billion in 2012, while the net income rose from $68.1 million, or $0.60 per share to $379.4 million, or $3.43 per share during the same period. Kansas City is also considered a good cash generator. In 2012, its operating cash flow was $673 million and its free cash flow was $133 million.

What I also like about Kansas City is its strong balance sheet, which has a reasonable amount of leverage. As of March 2013, it had $3.18 billion in equity, $64 million in cash, and around $1.6 billion in debt. The company is trading at $112.60 per share, with a total market cap of $12.40 billion. The market seems to value Kansas City quite expensively, at 22.3 times its forward earnings.

But it was much more expensive than its bigger peers

Compared to its peers including Union Pacific Corporation (NYSE:UNP) and Canadian Pacific Railway Limited (USA) (NYSE:CP), Kansas City looks quite expensive. Union Pacific Corporation (NYSE:UNP) is trading at $157.50 per share, with a total market cap of around $73.5 billion. The market values Union Pacific Corporation (NYSE:UNP) at a much lower valuation than Kansas City, at 14.45 times its forward earnings. In the first quarter of 2013, around 20% of Union Pacific Corporation (NYSE:UNP)’s freight revenue was generated from Intermodal, while Coal and Industrial stayed behind, accounting for 19% and 18%, respectively, of the total revenue.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!