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Here's Why You Should Retain Kansas City Southern (KSU) Now

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Kansas City Southern shares have moved up 49.6% in the past year compared with 10.5% growth of the industry it belongs to.

Zacks Investment Research
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For 2021, revenues and earnings are expected to register growth of 15% and 27%, respectively.

Key Growth Drivers

We are impressed by the company's efforts to reward its shareholders. The company returned $1050 million to its shareholders in 2020 through dividend payouts ($154 million) and share repurchases ($896 million). In February, the company’s board of directors approved a 23% increase in the quarterly dividend to 54 cents per share. The company returned $173 million to its shareholders in the first half of 2021 through dividend payments ($98 million) and share repurchases ($75 million).

Increased efficiency and lower costs are supporting Kansas City Southern’s bottom line amid coronavirus-induced volumes softness. Owing to low expenses, operating ratio (operating expenses, as a percentage of revenues) improved to 60.7% in 2020. Operating ratio is predicted to be 60% for the current year. The metric is expected in the 56-57% range for 2022. The lower the value of the metric, the better it is.  

Primary Concern

Despite gradual increase in economic activities, a few segments continue to experience substantial weakness. In the industrial and consumer business unit, the company’s metals business is still weak. The company is seeing continued softness in crude shipments. In 2020, segmental volumes dropped 14%. In spite of second-quarter 2021 results being aided by easy year-over-year comparisons, crude oil revenues and revenue per carload declined 14% and 27%, respectively, in first-half 2021. Additionally, food product (in the agriculture and minerals segment) revenues and volumes declined 10% year over year each in the first half of 2021.

Zacks Rank & Stocks to Consider

Kansas City Southern currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. (KNX - Free Report) , Landstar System, Inc. (LSTR - Free Report) and Herc Holdings Inc. (HRI - Free Report) . Knight-Swift and Landstar carry a Zacks Rank #2 (Buy), while Herc Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, Landstar and Herc Holdings is pegged at 15%, 12% and 49.2%, respectively.
 


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