Reasons Behind the Outperformance
Kansas City Southern seems to benefit from an improvement in carload volumes. This is evident from the company's third-quarter 2017 results, which were aided by a 3% rise in overall carload volumes.
Moreover, Kansas City Southern's operating ratio (operating expenses as a percentage of revenues) came in at 64.4% in the third quarter compared with 66.9% reported a year ago. Improvement in this key metric is a positive for the company. The lesser the value of operating ratio the better as it implies that more cash is available to the company to reward shareholders through dividends/buybacks.
In August, the company's board of directors approved of a new share repurchase program worth $800 million. This share repurchase plan replaces the $500 million program, which was announced in 2015 and completed in the second quarter of 2017. The fresh authorization also includes a $200 million Accelerated Share Repurchase program. Simultaneously, the company increased its quarterly dividend in excess of 9%.
In fact, Kansas City Southern is not the only railroad operator to have increased its dividend payout. Fellow railroad operators like Union Pacific Corporation UNP , Canadian Pacific Railway Ltd. CP and Canadian National Railway CNI have also raised their dividend payouts this year.
Additionally, Kansas City Southern like most of its peers stands to benefit from an improvement in intermodal volumes.
Estimate Revisions & Zacks Rank
Upward estimate revisions reflect optimism in a stock's prospects. Kansas City Southern scores impressively on this front as well. The stock has seen the Zacks Consensus Estimate for current-quarter and current-year earnings being revised 1.5% and 0.6% upward, respectively, over the last 90 days.
The above bullish factors are reflected in the company's Zacks Rank #2 (Buy), implying that it is expected to outperform the broader U.S. equity market over the next one to three months. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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