Why Kansas City Southern's Shares Plunged Today

Is this meaningful or just another movement?

Jan 24, 2014 at 4:00PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Kansas City Southern (NYSE:KSU) fell 16% today after the company reported disappointing earnings.

So what: The company's fourth-quarter revenue was up 8.3% to $615.6 million and net income was up 24% to $113.8 million, or $1.03 per share. The problem is that analysts were expecting $618 million in revenue and $1.10 per share in earnings and it's often more important to hit expectations than to just grow your business.  

Now what: It's no surprise that the coal business is down 24% from a year ago, a trend that will likely continue. But total volume did rise 2% and intermodal revenue was up 18%, so there were some bright spots. Still, results should be put into perspective because shares are trading at 25 times earnings. Investors are clearly expecting more growth than Kansas City Southern is delivering and that's just too high a multiple for me to pay for a railroad company right now.

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Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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