Morningstar Rating

Stock Research and Analysis

by Keith Schoonmaker, CFA

Bulls Say

KCS is developing a significant intermodal franchise. With access to Mexican ports, including Veracruz and Lazaro Cardenas (opened November 2007), and its 50% ownership of the Panama Canal railway, KCS is well placed to carry containers bound for Mexico and the U.S.
The firm improved track quality on its Meridian Speedway running from Shreveport, La., to Meridian, Miss., via a partnership with Norfolk Southern.
In Mexico, the firm receives higher rates and pays less for fuel, so the Mexican operating ratio is several percentage points better than that produced by the U.S. operations. Read more 

Bears Say

KCS derives half of its revenue from assets it operates via concessions, not ownership. Should political or economic conditions falter in Mexico or Panama, operations could be at risk of expropriation or unfavorable changes in terms.
Unlike trucking firms, railroads must purchase and maintain their roads. We project KCS' maintenance and growth capital expenditures will consume more than 20% of revenue in 2014.
KCS hauls a diverse mix of freight, but as seen in 2013, its significant grain exposure is highly subject to weather. Read more 

Management

The Mexican-U.S. configuration of this railroad is the brainchild of Michael Haverty, who served as CEO and chairman during 2000-10; he became nonexecutive chairman in 2013. In August 2010, David Starling assumed the roles of president and CEO. Robert   Read more 

Profile

Kansas City Southern, the smallest Class I railroad, derives about half of its $2.3 billion revenue on 3,100 miles of track in the Central and Southern United States. Remaining   Read more 

Morningstar Minute: Rails Are Just the Ticket for Wide Moats 
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