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Kansas City Southern Stays Neutral

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On Mar 15, 2013, we maintained our Neutral recommendation on Kansas City Southern (KSU - Free Report) , owing to ample cross-border growth opportunities, favorable pricing trends, high demand for product supplies and cost-saving actions, which were partially offset by certain risk factors. The transportation holding company carries a Zacks Rank #2 (Buy).

Why Kept at Neutral?

We believe Kansas City Southern remains well positioned to reap benefits from the strong ongoing pricing trend. The company is expected to post mid-single-digit growth in volumes and core pricing in the coming months. The growing demand for natural gas and crude oil supplies will support the expansion of the energy segment, leading to better business prospects for the company.

Strategic investments in expanding network and terminal capacity as well as enhanced safety, service and reliability for railroads customers are expected to pave way for the company’s growth, going forward. Kansas City Southern – the only railroad with service networks across both sides of the U.S. and Mexico border – also has a number of attractive projects in the pipeline that will likely boost its performance level over the next few years.

We believe that the company’s strong strategic positioning within the industry plus its healthy financial profile will support long-term development plans.

However, we remain cautious on the stock due to competitive pressures from other prominent industry players such as Canadian National Railway Company (CNI - Free Report) and CSX Corp. (CSX - Free Report) , a unionized workforce, heavy investments and increased railroad regulation. Additionally, the ongoing uncertainties in the coal and agriculture industries, an expected slump in fuel surcharge revenues and currency fluctuations keep us on the sidelines.

For the first and second quarters of 2013, the Zacks Consensus Estimates for earnings are 90 cents and 98 cents per share, respectively. These indicate a respective year-over-year growth of 20.0% and 15.7%.

Other Stocks

Canadian Pacific Railway Limited (CP - Free Report) with a Zacks Rank #1 (Strong Buy) displays strong fundamentals and can be considered by investors.

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