U.S. railroad operator Kansas City Southern could see shares rise as much as 20 percent thanks to a boost from a recent trade agreement between the United States and Mexico and its potential to be an acquisition target, Barron’s magazine said.
Kansas City Southern’s shares (KSU.N) have lagged peers in large part because of trade tensions between the United States and Mexico, Barron’s said. Nearly half of the railroad operator’s revenue comes from trade with Mexico.
U.S. President Donald Trump’s plans to renegotiate the North American Free Trade Agreement raised concerns among investors who felt that a potential breakdown in cross-border trade could impact Kansas City Southern’s profits, Barron’s said.
The agreement with Mexico, announced last week, is “in essence a return to pre-Trump times,” Jason Seidl, an analyst with Cowen & Co, told Barron’s.
Kansas City Southern could enjoy additional tailwinds from some of Mexico’s own recent policy changes, including a move to allow foreign firms to invest in its oil and gas industry, Barron’s said.
The stock also could see an even bigger pop if it receives an acquisition overture from another railroad company. Its small size and lack of overlap with other railroads makes it one of the few railroad operators that could easily pass muster with anti-trust regulators, Barron’s said.
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