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Kansas City Southern Message Board

  • lner2512 lner2512 Sep 18, 2009 2:00 PM Flag

    KSU stock price

    One of the most informative boards I've seen! As a new owner of KSU, I found info I could never have found anywhere else. Thanks, but I have more questions:

    Can anyone tell me why KSU stock is up 50% over the past two months, when BNI and UNP are up only 8-9%? I see KSU trades at about twice their P/E multiples--TTM, 2009 or even 2010 (almost). Why does the smallest Class 1 carrier command such a premium? Has the market fully discounted the bump expected from auto plant carloadings in the third quarter and the effect of the Roseburg line improvements? Are they that powerful? Is KSU's strategic position that important? Or are investors expecting a buyout?

    By any measure I can see, the stock seems fully valued, maybe even over-valued, at present. What am I missing?

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    • You are asking the right questions. But, the answers are subjective.

      Part of the answer is that prior to the recession a subsidiary of Lehman Brothers (Neuberger Berman) was actively accumulating shares in KCS. They became the largest shareholder owning approx 14% of the company.

      One year ago last week Lehman Bros. was liquidated.

      Similarly, there were two other hedge funds that were enhancing their holdings of KCS, probably with the view of orchestrating KCS as a takeover target. (Same thing was happening over at CSX with the TCI et al. hedge funds.)

      The hedgies got caught and were forced to liquidate their positions. The larger railroads share prices were not "punished" as much because:

      1. their ownership was less influenced by hedgies
      2. they pay dividends
      3. KCS is only starting to reap the benefits of a larger transportation franchise.
      4. KCS bonds are not investment grade and so, with the deleveraging that took place, KCS was perceived to be potentially vulnerable.
      5. the insecurity resultant from the backlash from the "buy American" source clause in the US stimulus package made KCS vulnerable because of their Mexican franchise.
      6. a Democrat was elected President whereas the Governor and state of Texas is Republican--thereby likely stalling the development of the TransTexas Corridor and associated infrastructure funding.

      Everybody will have opinions--all of which, like mine, are just "tea leaf reading", but, likely contributed.

      beagle

      • 2 Replies to beagle_badge
      • Thanks for your response. I understand how hedgies can affect stock prices, having been personally affected when they dumped some MLPs I own; Lehman was a major investor/dealer in many MLPs. Just the same, Neuberger Berman survived the Lehman bankruptcy pretty much intact. Could it be they--or other hedgies--have started accumulating KSU shares again? Someone is driving up the price.

      • Thanks for your response. I understand how hedgies can affect stock prices, having been personally affected when they dumped some MLPs I own; Lehman was a major investor/dealer in many MLPs. Just the same, Neuberger Berman survived the Lehman bankruptcy pretty much intact. Could it be they--or other hedgies--have started accumulating KSU shares again? Someone is driving up the price.

 
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120.29+2.27(+1.92%)Dec 19 4:02 PMEST

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