On GE, Just Say "No"
Kansas City Southern (KSU) is a nice little railroad company. The stock is up 40% the past six months.
The company is well run and is profitable. Some highlights from the bosses on the 2011 results:
“KCS’s solid fourth quarter put the final touches on a successful 2011,” stated David L. Starling, president and chief executive officer.
For the full year 2011, revenue was a record $2.1 billion, up 16% over 2010. This is the first time that KCS generated annual revenue above $2 billion. Carloads for 2011 were 2 million, the first time annual volumes reached the 2 million threshold.
Full-year operating income was $612 million, a 26% increase over the prior year, and the Company’s 2011 operating ratio was 70.9% compared with 73.2% in 2010. Diluted earnings per share for full year 2011 were $3.00 compared to $1.67 for 2010.
Moody's likes KSU, they just upgraded it a notch to Ba1.
RATINGS RATIONALEWith a rapid restoration in freight volume and yield, Kansas City Southern's credit profile has improved materially.
If this company wanted to raise some cash they could do it in a week. Given their current market cap of $7.5 billion, it could do a secondary offering of stock and raise $100mm in the bat of an eye. If it wanted debt financing, that too would be available from yield hungry investors. Given the strength of the balance sheet, I think they could add another $200mm in debt without much of a problem at all.
But KSU is not going to the capital markets for the money they need to expand. Why should they? After all, Uncle Sam is willing to lend them cheap money: (Link)
Kansas City Southern Railway Company (KCSR) has taken out a $54.6 million Federal Railroad Administration-administered Railroad Rehabilitation and Improvement Financing (RRIF) Program loan to purchase 30 new General Electric diesel-electric locomotives.
I’m so sick of seeing this day after day. Washington is shelling out taxpayer money to support this successful company so they can buy locomotives from GE.
There are many segment of our economy and society that need a helping hand from the government. I would put the interests of GE (and KSU) at the very bottom of the list. They are doing fine, they don’t need these handouts.
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