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Will Kansas City Southern Repeat in 2012?

By    |   Friday, 03 February 2012 06:34 AM

Railroad company stock Kansas City Southern (KSU) posted a share price gain of 42 percent in 2011. The company is poised to continue growth of revenue and profits in 2012, but can the share price repeat that show, or even post a positive return for the year?

Kansas City Southern is a 125-year-old holding company for railroads serving central and southern United States and northeastern and central Mexico, and it has 50 percent interest in the Panama Canal Railway Company. In 2011, the company generated $2 billion in revenue and transported 2 million railcar loads for the first time in the company's history.

For the year, Kansas City Southern reported revenue of $2.1 billion, up 16 percent from sales of $1.81 billion in 2010. Net income for the year was $3 per share, up 80 percent from the $1.67 per share earned in 2010.

Wall Street analysts track and predict the operating earnings per share, which adjusts earnings for tax credits and retirement costs. The 2011 adjusted operating earnings were $2.85 per share. The consensus earnings estimate for 2012 is operating earnings of $3.47 per share.

For 2012, Kansas City Southern management is forecasting low double-digit revenue growth. The driver for increased profitability is to continue lowering the company's operating ratio. The ratio went to 70.9 percent in 2011 from 82 percent in 2009.

Last year was the first year in at least six years that the Kansas City Southern operating ratio was below the average for the other Class 1 railroad companies.

Price run-up

The strong price run-up in 2011 has resulted in a skittish market concerning the company's reported results. The fourth quarter earnings missed the Wall Street consensus estimate by just 1 percent. In response to the miss, the share price sold off by as much as 8 percent before recovering a portion of the loss.

Recently, BB&T Capital Markets analyst Neal Deaton, who has a buy rating on KSU, highlighted the company's potential for strong growth from the railroad holdings in Mexico.

The company next reports on April 23.

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