What’s Happening With Kansas City Southern Stock?

by Trefis Team
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[Updated: 5/20/2021] U.S. STB Objection Over KSU Acquisition

The stock price of Kansas City Southern (NYSE: KSU) has seen a 4% drop in just five trading sessions. This fall is primarily led by the U.S. Surface Transportation Board (STB) turning down Canadian National’s application to form a voting trust that would allow the company a takeover and own Kansas City Southern, which recently accepted the offer from Canadian National. Earlier in March this year, Kansas City Southern was approached by another railroad company – Canadian Pacific Railway for a merger, but Kansas City Southern has announced it will terminate that deal, given that it has accepted the offer from Canadian National.

But now that KSU stock has fallen 4% in just five days, will it resume its downward trajectory over the coming weeks, or is a rise in the stock imminent? We believe that the stock will rebound in the near term. The U.S. STB’s objection over the Canadian National vote trust was due to the absence of a detailed merger agreement. Canadian National has stated this to be a minor setback and it will resubmit its filing with the U.S. STB along with the detailed merger agreement. While the move in KSU stock will primarily be dependent on developments around its acquisition, using the recent trend (4% fall in a week) and ten years of historical stock data, the Trefis AI engine finds that KSU stock will likely move higher over the next one month (twenty-one trading days). 

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price using historical stock data, returns for KSU stock average around 4.4% in the next one-month (twenty-one trading days) period after experiencing a 5% fall in a week (five trading days), slightly higher than the 3.1% expected return for the S&P500 over the next month (twenty-one trading days). More importantly, there is a strong 72% probability of a positive return over the next twenty-one trading days and 67% percent probability of a positive excess return.

But how would these numbers change if you are interested in holding KSU stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Kansas City Southern stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

Some Fun Scenarios, FAQs & Making Sense of Kansas City Southern Stock Movements:

Question 1: Is the average return for Kansas City Southern stock higher after a drop?

Answer: Consider two situations,

Case 1: Kansas City Southern stock drops by -5% or more in a week

Case 2: Kansas City Southern stock rises by 5% or more in a week

Is the average return for Kansas City Southern stock higher over the subsequent month after Case 1 or Case 2?

KSU stock fares better after Case 1, with an average return of 4.4% over the next month (twenty-one trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 1.2% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Kansas City Southern stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Kansas City Southern stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For KSU stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Kansas City Southern after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.

It’s pretty powerful to test the trend for yourself for Kansas City Southern stock by changing the inputs in the charts above.

[Updated: 3/24/2021] Canadian Pacific Railway To Acquire KSU

The stock price of Canadian Pacific Railway (NYSE: CP) has seen over a 5% drop over the last five trading days, after the company announced its plans to acquire Kansas City Southern in a deal valued at $29 billion. The acquisition offer was made at a premium of 23% to Kansas’ stock value as of March 19, 2021. Canadian Pacific will also assume $3.8 billion debt of Kansas, included in the $29 billion offer. Now, the reason for CP stock price correction is the higher debt levels the company will have post Kansas’ acquisition. However, there are several positives associated with this deal. Firstly, the company expects synergies of $780 million, and the merger to be EPS accretive from the first year itself. Secondly, both the companies have an existing interchange in Kansas city, implying lower integration costs. Lastly, Canadian Pacific will become the first railroad to connect Mexico, the U.S., and Canada, implying better market reach.

Looking at the recent decline, the 5% drop for CP stock over the last five days compares with a 1.2% drop seen in the broader S&P 500 index. Now, is CP stock poised to drop further? It doesn’t look that way. We believe that positives from this merger outweigh the concerns of higher debt levels for Canadian Pacific. Also, based on our machine learning analysis of trends in the stock price over the last few years, we believe that there is a strong 64% chance of a rise in CP stock over the next month (twenty-one trading days).

Out of 124 instances in the last 10 years that Canadian Pacific Railway (CP) stock saw a five-day decline of 5.5% or more, 79 of them resulted in CP stock rising over the subsequent one month period (twenty-one trading days). This historical pattern reflects 79 out of 124, or about 64% chance of a gain in CP stock over the coming month. See our analysis on Canadian Pacific Stock Chances of Rise for more details. Curious about the possibility of rising over the next quarter? Check out the CP Stock AI Dashboard: Chances of Rise And Fall for a variety of scenarios on how CP stock could move.

Five Days: CP -5.5%, vs. S&P500 -1.2%; Underperformed market

(5% likelihood event)

  • Canadian Pacific Railway stock declined 5.5% over a five-day trading period ending 3/23/2021, compared to broader market (S&P500) decline of 1.2%
  • A change of -5.5% or more over five trading days is a 5% likelihood event, which has occurred 124 times out of 2516 in the last ten years

Ten Days: CP -4.3%, vs. S&P500 1%; Underperformed market

(24% likelihood event)

  • Canadian Pacific Railway stock declined 4.3% over the last ten trading days (two weeks), compared to broader market (S&P500) rise of 1.0%
  • A change of -4.3% or more over ten trading days is a 24% likelihood event, which has occurred 609 times out of 2500 in the last ten years
While CP stock may rebound, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Waste Management vs. Canadian Pacific.

See all Trefis Price Estimates and Download Trefis Data here

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