Railroad Earnings Contrast Market Pessimism

“Davidson” submits:

The contrast between market psychology and the current economic trend is what produces an investment opportunity. Kansas City Southern (KSU) report this morning is one of many which define the current pace of economic activity. In particular, KSU’s business activity represents the US Heartland manufacturing and global export through Gulf ports and Mexican Pacific ports. Record results belie the current pessimistic market psychology and underline the strength of the investment opportunity.

Kansas City Southern Reports Record Fourth Quarter and Full-Year 2018 Results

Fourth Quarter 2018 Results

  • Record fourth quarter revenues of $694 million, an increase of 5% from fourth quarter 2017
  • Reported operating income of $256 million. Record fourth quarter adjusted operating income of $248 million, excluding a gain on insurance recoveries related to hurricane damage
  • Reported operating ratio of 63.1%, compared to 64.0% in the fourth quarter of 2017. Adjusted operating ratio of 64.3%
  • Reported diluted earnings per share of $1.59. Record fourth quarter adjusted diluted earnings per share of $1.56, 13% higher than a year ago

KSU’s revenue and margins have grown in line with US economic activity as correlated with the Chemical Activity Barometer(CAB). With the current level of market pessimism, KSU’s share price does not reflect this success as it has not since the rise in the US$ and associated oil price collapse of 2014-2016. KSU’s business has recovered, but market psychology has not! This provides an exceptional investment opportunity in my opinion. A recovery in market psychology provides potential pricing levels over $300shr contrasted with today’s $100shr. Market psychology remains unpredictable but has always followed economic trends and business financials once all is said and done. Having a wide disparity between market psychology and economic/business fundamentals is the stuff of investment opportunity.

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Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or ...

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