Drip Portfolio Report
Friday, September 19, 1997
by Randy Befumo (TMF
[email protected])
ALEXANDRIA, VA (Sept. 19, 1997) -- KANSAS CITY SOUTHERN (NYSE: KSU) refuses to sit still and wait for me to get a chance to analyze it for potential inclusion in the Drip Portfolio, as I promised two months ago when we started off. The company rose $3 5/16 to $29 5/8 today after announcing that it would exceed earnings estimates by at least 35% in the upcoming quarter and that it would split its mutual fund operations and its railroad operations into separate publicly traded companies. Only a few weeks after it split three-for-one, the company demonstrates that stock splits often signal future good news -- although this is hardly a guarantee.
Drip Portfolio readers have also seen my previous consideration that I put on hold, OWENS CORNING (NYSE: OWC), drop this week. In case you missed it, Owens Corning pre-announced that it would miss estimates for its upcoming third quarter due to pricing pressures in insulation and too few summer storms destroying roofs across America. As I tried to emphasize a few days ago, the investment game goes to those who turn over the most stones. Although both Kansas City Southern and Owens Corning have had significant price changes since I said I would look at them, the price changes themselves do not change my opinion that both are interesting. In fact, my attitude is the news needs to be analyzed independently to determine how it affects both companies as potential investments -- regardless of what other investors think.
As Jeff finds a healthcare investment possibility, I was going to offer one of my own today in this space -- Columbia/HCA. Unfortunately, given that this is the real world, the news has intruded. With Kansas City Southern announcing pretty significant news and knowing that Columbia is not going anywhere by next week, I think we might want to start digging there. As I said that I wanted to see Owens Corning's next quarter to see what their debt situation was after the Fibreboard merger, I won't bother looking at that company until the quarterly report comes out. So, despite the fact that this may interrupt Jeff's healthcare train of thought, I begin looking at Kansas City Southern officially today. Next week Jeff will cover Abbott Laboratories and Johnson & Johnson.
Kansas City Southern is a regional railroad with significant operations in the mutual fund area. Although the Motley Fool tends to be negative on mutual funds, it certainly does not mean that they are a bad business. As Kansas City owns a significant stake in the Berger Funds, Janus Funds, and DST SYSTEMS (NYSE: DST), a company that provides software and services to mutual funds, we have to look at these businesses as well as the railroad business separately. Although this was true before today, this is especially true now that the company has stated that it intends to separate these fund businesses from the railroad business by the fourth quarter.
So, anyone who wants to go through the analysis with me needs to go to EDGAR (www.sec.gov/cgi-bin/srch-edgar), FreeEdgar (www.freeedgar.com) or Edgar-Online (www.edgar-online.com) and look at Kansas City Southern's last 10-K and the last three 10-Qs. Getting the latest news releases from Company News on AOL or the Fool Web Site on AOL is also crucial, particularly the last quarterly press release, the stock split press release, and today's press release. If you have the annual report, great. If not, no biggie. A lot of this information is on the company's website at www.kcsi.com, so you may want to go there as well. When you are reading up to prepare for our two-week look at KSU (which will happen in two Drip reports next week and three Drip reports the week after), pay careful attention to the following:
(1) How much of Berger and Janus does Kansas City own? What were the financials of both companies?
(2) What are the competitors of Berger and Janus? How much are these companies valued at?
(3) How much of DST Systems does Kansas City own? What is that stake worth according to the current valuation of DST? Is DST fairly valued on its own?
(4) What are the financials of the railroad? What other railroads is it similar to? Are there other railroads with track in the same places? Could the railroad make a strategic acquisition or be a strategic acquisition for one of the larger railroads?
Have a Foolish weekend.
--Randy Befumo
