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Kansas City Southern - A Prime Target For Takeover

Kansas City Southern is the smallest of the major railroad operators in North America.

In addition to operating in a wide moat sector, the company is the only operator running seamlessly between Mexico and US.

This makes the company very attractive and a prime takeover target by the larger railroads.

The company has reinstated dividends since 2012 and dividend growth remains strong.

Kansas City Southern Inc (NYSE:KSU) is the smallest of the North American railroad companies operating approximately 6,500 miles of rail network, serving business centers in south central US and Mexico. KSU's peers include Union Pacific Corp. (NYSE:UNP), Canadian National Railway (NYSE:CNI), CSX Corp. (NYSE:CSX), Norfolk Southern (NYSE:NSC), and Canadian Pacific Railway (NYSE:CP).

KSU operates in one of the widest moat industries - railroads. The company has a diversified traffic volume including intermodal, agriculture & minerals, chemicals & petroleum, industrial & consumer products, automotive and other products.

(Source: KSU IR book)

Corporate Profile (from Yahoo Finance)

Kansas City Southern, through its subsidiaries, engages in the freight rail transportation business. It operates north/south rail route between Kansas City, Missouri, and various ports along the Gulf of Mexico in Alabama, Louisiana, Mississippi, and Texas in the midwest and southeast regions of the United States. The company also operates direct rail passageway between Mexico City and Laredo, Texas serving various Mexicos industrial cities and three of its seaports; a 157-mile rail line extending from Laredo, Texas to the port city of Corpus Christi, Texas; and The Kansas City Southern Railway Company rail line between Meridian, Mississippi and Shreveport, Louisiana, as well as owns the northern half of the rail bridge at Laredo, Texas. Its coordinated rail network comprises approximately 6,500 route miles extending from the midwest and southeast portions of the United States south into Mexico and connects with other Class I railroads. The company serves customers conducting business in various industries, including electric-generating utilities, chemical and petroleum products, paper and forest products, agriculture and mineral products, automotive products, and intermodal transportation. Kansas City Southern was founded in 1962 and is headquartered in Kansas City, Missouri.

The Railroad Industry

Railroads are the pulse of the economy. Whether transporting crude, lumber, merchandise, agricultural or industrial products, railroads are what keep the economy moving. While the transportation for entities such as coal (which used to be the largest users of railroad services a few years ago) has fallen due to the fall in crude prices and rise of green energy alternatives, the transportation need for crude saw significant rise in the recent past. However, the recent turn of events with falling energy prices has put a damper on crude transportation via railroads. However, the bright spot for KSU includes the faster growing Mexican economy and the need to transport the products between Mexico and US.

The following table compares the railroad industry to show where KSU fits in compared to Union Pacific Corp., Canadian National, CSX Corp., Norfolk Southern, and Canadian Pacific.

(Source: Created by author. Data from Google Finance and FinViz)

I present a more detailed railroad sector overview in this post.

Kansas City Southern Subsidiaries

  • Kansas City Southern controls and owns all of the stock of The Kansas City Southern Railway Company ("KCSR"), a U.S. Class I railroad founded in 1887. KCSR serves a 10-state region in the midwest and southeast regions of the United States and has the shortest north/south rail route between Kansas City, Missouri and several key ports along the Gulf of...