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Category: Kansas City Southern (KSU)
Date: 25 January 2021 Stock price of Kansas City Southern: $217.58 We take a look at the 4th quarter 2020 earnings report of freight rail operator Kansas City Southern (KSU) and compare their stock price performance to rivals such as Union Pacific (UNP) and Norfolk Southern (NSC). For the 4th quarter 2020 earnings revenue came in at $693.4 million and net income of $156.7 million.
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Despite several significant challenges in the fourth quarter, including continued impacts from the pandemic, weather events and an extended outage from illegal protests on segments of our network in Mexico, KCS delivered strong fourth quarter results - president and chief executive officer, Patrick J. Ottensmeyer "
More About Kansas City Southern (KSU)
Headquartered in Kansas City, Mo., Kansas City Southern (KCS) (NYSE: KSU) is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holding is The Kansas City Southern Railway Company, serving the central and south central U.S. Its international holdings include Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lázaro Cárdenas, Tampico and Veracruz, and a 50 percent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS' North American rail holdings and strategic alliances with other North American rail partners are primary components of a unique railway system, linking the commercial and industrial centers of the U.S., Mexico and Canada.
Overview of Kansas City Southern 4th quarter 2020 earnings report
The data below refers to the most recent quarter unless specified otherwise:
- Revenues: $693.4 million (down from $729.5 million for the same quarter of the previous year)
- Revenue decreased by -4.9% over the last 12 months
- Operating expenses: $431.1 million (down from $493.5 million for the same quarter of the previous year)
- Operating expenses decreased by -12.6% over the last 12 months
- Net income: $165.7million (up from a $127.2 million for the same quarter of the previous year)
- Diluted earnings per share: $1.80 (up from $1.30 for the same quarter of the previous year)
- PE ratio of Norfolk Southern : 33.3
- Diluted weighted-average shares outstanding: 91.8 million (down from 97.98 million for the same quarter of the previous year)
Kansas City Southern management commentary on their 4th quarter 2020 earnings
KANSAS CITY, Mo.--(BUSINESS WIRE)-- Kansas City Southern (KCS) (NYSE:KSU) reported strong fourth quarter and full year 2020 results, despite significant operating and economic challenges. Fourth Quarter 2020 Fourth quarter revenues were $693.4 million, a decrease of 5% primarily due to lower volumes related to a service interruption at Lazaro Cardenas due to teachers' protests, lower fuel surcharge and fluctuations in foreign currency. Fourth quarter operating expenses were $431.1 million. Operating income was $262.3 million and the reported operating ratio was 62.2%. Fourth quarter net income was $166.3 million, or $1.80 per diluted share.
"Despite several significant challenges in the fourth quarter, including continued impacts from the pandemic, weather events and an extended outage from illegal protests on segments of our network in Mexico, KCS delivered strong fourth quarter results," stated president and chief executive officer, Patrick J. Ottensmeyer. "Thanks to the hard work and dedication of our employees, we are overcoming the adversity that we faced in the fourth quarter and throughout 2020, and we heighten our focus on Precision Scheduled Railroading (PSR)-driven service improvements to realize the significant growth opportunities that we see going forward." Full Year 2020 Full year 2020 revenues were $2.6 billion, a decrease of 8% on a 6% decline in carloads. Operating income was $1.0 billion and the reported operating ratio was 61.9%. Full year 2020 net income was $619.1 million, or $6.54 per diluted share.
During 2020, the KCS network experienced a rapid decline in volumes followed by an unprecedented volume rebound, forcing the Company to quickly adjust its service model to match customer demand while optimizing its cost structure. These actions resulted in significant improvements to train length and fuel efficiency, improving 12% and 5%, respectively. PSR initiatives also contributed directly to operating expense savings of $96 million in 2020, and are projected to deliver incremental savings of $50 million in 2021. "As we turn our focus to 2021, our primary objective will be the implementation of PSR Phase 3, which combines improved operational performance with an intense focus on customer service and revenue growth,” stated Ottensmeyer. "Phase 3 of PSR will help us capitalize on the unique growth opportunities available across our franchise. "These growth opportunities, combined with an intense focus on excellent execution, give us confidence to reinstate a multi-year outlook, which has improved from the guidance provided a year ago. We look forward to delivering another year of strong returns to shareholders.”
Financial Metric Current Outlook
During 2020, the KCS network experienced a rapid decline in volumes followed by an unprecedented volume rebound, forcing the Company to quickly adjust its service model to match customer demand while optimizing its cost structure. These actions resulted in significant improvements to train length and fuel efficiency, improving 12% and 5%, respectively. PSR initiatives also contributed directly to operating expense savings of $96 million in 2020, and are projected to deliver incremental savings of $50 million in 2021. "As we turn our focus to 2021, our primary objective will be the implementation of PSR Phase 3, which combines improved operational performance with an intense focus on customer service and revenue growth,” stated Ottensmeyer. "Phase 3 of PSR will help us capitalize on the unique growth opportunities available across our franchise. "These growth opportunities, combined with an intense focus on excellent execution, give us confidence to reinstate a multi-year outlook, which has improved from the guidance provided a year ago. We look forward to delivering another year of strong returns to shareholders.”
Financial Metric Current Outlook
- Revenue Growth Double-digit growth in 2021
- Operating Ratio around 57.5% in 2021 Between 55% - 56% in 2022
- Earnings per Share $9.00 or better in 2021 Between $10.50 - $11.00 in 2022
- Capital Expenditures around 17% of revenue in 2021 & 2022
- Free Cash Flow around $700M in 2021 & 2022
Stock price chart of Kansas City Southern (KSU) over the last 5 years
The image below shows the stock price performance of Kansas City Southern (KSU) over the last 5 years. And its been a pretty good time for KSU stockholders with the stock of Kansas City Southern providing a return of 170.3% to its stockholders over the last 5 years.
The stock of Kansas City Southern is trading at a lot closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Kansas City Southern stock is positive at this point in time.
The stock of Kansas City Southern is trading at a lot closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of Kansas City Southern stock is positive at this point in time.
Stock price chart of Kansas City Southern (KSU) over the last 5 years
Kansas City Southern (KSU) vs Union Pacific (UP) vs Norfolk Southern (NSC) over last 5 years
The image below shows the stock price performance of Union Pacific (UNP) vs Norfolk Southern (NSC) vs Kansas City Southern (KSU) stock over the last 5 years. All three freight rail operators active in the USA. And as the image shows the stock price performance of the three freight rail operators are very similar. The summary below shows the stock price returns provided by each stock over the last 5 years:
- Norfolk Southern (NSC): 226.4
- Kansas City Southern (KSU): 170.3%
- Union Pacific (UNP): 163.3%
Kansas City Southern (KSU) vs Union Pacific (UP) vs Norfolk Southern (NSC) over last 5 years
Our latest stock valuation of Kansas City Southern
So what do we value Kansas City Southern (KSU) stock at based on their latest earnings report? Based on their 3rd quarter 2020 earnings report our valuation model provides a target price (full value price) for Kansas City Southern at $183.00 a stock. (up strongly from our 3rd quarter 2020 earnings report valuation). We therefore believe the stock of Kansas City Southern (KSU) is overvalued at its current price.
We usually recommend that long term and fundamental investors look to enter a stock at least 10% below our target price, which in this case is $183.00. A good entry point would therefore be at $164.70.
Since the stock of Kansas City Southern (KSU) is trading at well above our suggested entry price we rate the stock of Kansas City Southern as a sell.
We usually recommend that long term and fundamental investors look to enter a stock at least 10% below our target price, which in this case is $183.00. A good entry point would therefore be at $164.70.
Since the stock of Kansas City Southern (KSU) is trading at well above our suggested entry price we rate the stock of Kansas City Southern as a sell.
Next earnings release of Kansas City Southern
It is expected that Kansas City Southern (KSU) will release their 1st quarter 2021 earnings report in middle of April 2021