Kansas City Southern (NYSE: KSU) and Norfolk Souther Corporation (NYSE:NSC) are both large-cap transportation companies, but which is the better investment? We will contrast the two companies based on the strength of their institutional ownership, valuation, analyst recommendations, profitability, earnings, dividends and risk.

Insider & Institutional Ownership

84.6% of Kansas City Southern shares are owned by institutional investors. Comparatively, 70.5% of Norfolk Souther Corporation shares are owned by institutional investors. 1.0% of Kansas City Southern shares are owned by insiders. Comparatively, 0.4% of Norfolk Souther Corporation shares are owned by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a stock is poised for long-term growth.

Dividends

Kansas City Southern pays an annual dividend of $1.44 per share and has a dividend yield of 1.4%. Norfolk Souther Corporation pays an annual dividend of $2.44 per share and has a dividend yield of 1.9%. Kansas City Southern pays out 28.9% of its earnings in the form of a dividend. Norfolk Souther Corporation pays out 39.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Kansas City Southern has raised its dividend for 3 consecutive years and Norfolk Souther Corporation has raised its dividend for 7 consecutive years. Norfolk Souther Corporation is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Risk & Volatility

Kansas City Southern has a beta of 0.81, suggesting that its share price is 19% less volatile than the S&P 500. Comparatively, Norfolk Souther Corporation has a beta of 1.38, suggesting that its share price is 38% more volatile than the S&P 500.

Profitability

This table compares Kansas City Southern and Norfolk Souther Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Kansas City Southern 21.52% 11.40% 5.68%
Norfolk Souther Corporation 17.66% 14.45% 5.18%

Earnings & Valuation

This table compares Kansas City Southern and Norfolk Souther Corporation’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Kansas City Southern $2.47 billion 4.35 $1.18 billion $4.98 20.46
Norfolk Souther Corporation $10.23 billion 3.66 $4.29 billion $6.16 21.07

Norfolk Souther Corporation has higher revenue and earnings than Kansas City Southern. Kansas City Southern is trading at a lower price-to-earnings ratio than Norfolk Souther Corporation, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current ratings for Kansas City Southern and Norfolk Souther Corporation, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Kansas City Southern 0 8 9 0 2.53
Norfolk Souther Corporation 3 15 5 0 2.09

Kansas City Southern currently has a consensus price target of $107.71, suggesting a potential upside of 5.71%. Norfolk Souther Corporation has a consensus price target of $117.40, suggesting a potential downside of 9.55%. Given Kansas City Southern’s stronger consensus rating and higher probable upside, equities research analysts clearly believe Kansas City Southern is more favorable than Norfolk Souther Corporation.

Summary

Kansas City Southern beats Norfolk Souther Corporation on 10 of the 17 factors compared between the two stocks.

About Kansas City Southern

Kansas City Southern (KCS) is a holding company. The Company has domestic and international rail operations in North America that are focused on the north/south freight corridor connecting commercial and industrial markets in the central United States with industrial cities in Mexico. The Company’s subsidiaries include The Kansas City Southern Railway Company (KCSR) and Kansas City Southern de Mexico, S.A. de C.V. (KCSM). KCSR serves a 10-state region in the midwest and southeast regions of the United States and has the north/south rail route between Kansas City, Missouri and various ports along the Gulf of Mexico in Alabama, Louisiana, Mississippi and Texas. KCSM operates a corridor of the Mexican railroad system. KCSM’s rail lines provide rail access to the United States and Mexico border crossing at Nuevo Laredo, Tamaulipas. KCSM also provides rail access to the Port of Lazaro Cardenas on the Pacific Ocean.

About Norfolk Souther Corporation

Norfolk Southern Corporation is a holding company engaged in the rail transportation business. As of December 31, 2016, the Company operated approximately 19,500 miles of road primarily in the East and Midwest. The Company is engaged in the rail transportation of raw materials, intermediate products and finished goods primarily in the Southeast, East and Midwest. The Company, through interchange with rail carriers, to and from the rest of the United States. The Company also transports overseas freight through various Atlantic and Gulf Coast ports. It provides logistics services and offers the intermodal network in the eastern half of the United States. The Company’s system reaches various manufacturing plants, electric generating facilities, mines, distribution centers and other businesses located in its service area. The Company’s intermodal market group consists of shipments moving in trailers, domestic and international containers, and RoadRailer equipment.

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