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Rating Change Detail - KANSAS CITY SOUTHERN (KSU) - 3/7/2013
The stock was downgraded from Strong Interest to No Interest on 3/7/2013 by the P/E/Growth Investor Strategy based on the principles of Peter Lynch. The score according to this strategy fell from 91% to 0%. A full detailed analysis of KSU using this strategy is included below. For a full detailed analysis of KSU using 12 proven strategies of Wall Street Legends, take a free trial to Validea.com

Detailed Analysis of KANSAS CITY SOUTHERN (KSU)

Strategy: P/E/Growth Investor - Based on: Peter Lynch

DETERMINE THE CLASSIFICATION:

This methodology would consider KSU a "fast-grower".

P/E/GROWTH RATIO: [FAIL]

The investor should examine the P/E (N/A) relative to the growth rate (37.18%) for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for KSU is not available which means an opinion could not be rendered on this criterion. This criteria is the most important one in the methodology and a failure of it will automatically result in a 0% score for the overall analysis.

SALES AND P/E RATIO: [FAIL]

For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate high enough to support a P/E above this threshold. The P/E ratio for KSU is not available which means an opinion cannot be rendered on this criterion.

INVENTORY TO SALES: [PASS]

When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for KSU was 5.22% last year, while for this year it is 5.61%. Since inventory has been rising, this methodology would not look favorably at the stock but would not completely eliminate it from consideration as the inventory increase (0.39%) is below 5%.

EPS GROWTH RATE: [PASS]

This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for KSU is 37.2%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'. However, it may be difficult to sustain such a high growth rate.

TOTAL DEBT/EQUITY RATIO: [PASS]

This methodology would consider the Debt/Equity ratio for KSU (51.92%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for KSU should be good enough to compensate.

FREE CASH FLOW: [NEUTRAL]

The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for KSU (-0.42%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.

NET CASH POSITION: [NEUTRAL]

Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for KSU (-28.85%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.

For a full detailed analysis of KSU using 12 proven strategies of Wall Street Legends,
take a free trial to Validea.com

Rating Change Detail - KANSAS CITY SOUTHERN (KSU) - 3/7/2013

Detailed Analysis of KANSAS CITY SOUTHERN (KSU)

Strategy: P/E/Growth Investor - Based on: Peter Lynch