KSU – Market expectations are for record-high Uniform ROA, but management’s concerns about revenues, EPS, and competition imply this may be unwarranted

• Kansas City Southern (KSU:USA) currently trades near historical averages relative to UAFRS-based (Uniform) Assets, with a 1.8x Uniform P/B. At these levels, the market has fairly bullish expectations for the firm, which may be unwarranted given management’s concerns about revenues, EPS, and competition
• Specifically, management appears concerned about the sustainability of revenue growth in their Energy business and overall EPS growth. They also appear concerned about the potential for continued competitive headwinds in their intermodal business. Should Uniform Margins fail to accelerate to record-highs, as management sentiment suggests, equity downside would be warranted