Shares of Kansas City Southern (KSU - Free Report) scaled a 52-week high of $120.34 during the trading session on Aug 29 before retracing a bit to close at $119.46. The prime reason behind this stock price surge can be attributed to the recent agreement between the United States and Mexico to rework the NAFTA (North American Free Trade Agreement) deal, thus putting speculations to rest, which were rife over the United States pulling out of NAFTA.
Particularly, Kansas City Southern was at the receiving end of this uncertainty, since the company derives a major portion of revenues from U.S-Mexico shipments. Notably, during the second quarter of 2018, this railroad operator generated 48.5% of total revenues from Mexico. The company has significant exposure to Mexico’s automotive, intermodal and energy sectors.
Clearly, a major hurdle has been removed for the company. However, the trade pact between both countries has incorporated some new rules on automobile production. Per the rules, more car manufacturing is expected to be brought back from Mexico to the United States. It remains to be seen how this affects Kansas City Southern, given that it serves 10 of the 11 automotive manufacturers in Mexico.
Apart from the reassuring NAFTA-related update, a noteworthy point for the company is its impressive volume growth. Overall, volumes inched up 1% during the first half of 2018. Moreover, the company expects volume expansion to accelerate in the latter half of 2018 and 2019, backed by a strong economy and network capacity investments. It anticipates volume rise of 3-4% in the current year.
Zacks Rank & Key Picks
Kansas City Southern carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are GATX Corporation (GATX - Free Report) , Trinity Industries, Inc. (TRN - Free Report) and SkyWest, Inc (SKYW - Free Report) . While GATX holds a Zacks Rank #2 (Buy), Trinity and SkyWest sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of GATX, Trinity and SkyWest have rallied more than 40%, 25% and 86%, respectively, in a year.
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