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Kansas City Southern Rallies 26% YTD: What's Driving it?

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Shares of Kansas City Southern (KSU - Free Report) have rallied 26.6% so far this year, outperforming the industry’s 23.3% increase.


Reasons Behind the Price Surge

Impressive growth in carload volumes has been bolstering the company’s performance. Although volumes dipped during the first quarter of 2019 due to service disruption, the 2019 outlook for the same is encouraging. The company expects volumes to rise between 2% and 3% in the current year. Moreover, revenues are expected to augment between 5% and 7% in the ongoing year. Further encouragement is that the CAGR for earnings per share in the 2019-2021 period is anticipated in the low-to-mid-teens’ range.

Improvement in operating ratio (operating expenses as a percentage of revenues) during the first quarter is also noteworthy. Despite operating expenses rising 22.5%, operating ratio decreased to 64.2% in the first quarter from 65.8% in the year-ago period. The lower the operating ratio, the better it is. Notably, the company targets an operating ratio of 60-61% by 2021.

Additionally, a substantial rise in revenues across majority of Kansas City Southern’s segments is boosting its top line. Evidently, during the first quarter, each of the segments, except Intermodal and Automotive, reported an increase in revenues. While Chemical & Petroleum segment revenues jumped 21%, Agriculture & Minerals segment revenues rose 8%. Meanwhile, the Energy segment and Industrial & Consumer Products segment revenues ascended 5% and 2%, respectively. Other revenues expanded 15% year over year during the quarter.

Amid this positivity, the Zacks Consensus Estimate for the company’s second-quarter earnings has been moved a penny north in the last 90 days. The same for full-year earnings has been revised 6 cents upward over the same time frame.

Zacks Rank & Key Picks

Kansas City Southern carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are CSX Corporation (CSX - Free Report) , SkyWest, Inc. (SKYW - Free Report) and GATX Corporation (GATX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of CSX and SkyWest have gained 20% and 34%, respectively, so far this year. Meanwhile, GATX flaunts an impressive earning history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters.

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