Is Donald Trump going to ignite a U.S.-Mexican trade war?
Investors were questioning exactly that on Election Day, when shares of railroad operator Kansas City Southern (KSU) fell as much as -12% intraday. About 48% of the railroad operator’s revenue comes from Mexico.
Kansas City Southern shares have yet to recoup the Election Day losses, even after posting better-than-expected results on Inauguration Day. The company’s executives acknowledged the irony of posting results on the day of Trump’s inauguration following the share price drop:
"Obviously the political and economic uncertainty is probably first and foremost on most of our minds, and the irony of us reporting earnings on the inauguration day of the 45th President is not entirely lost on us," Chief Executive Patrick Ottensmeyer said.
In the video above, Hedgeye Industrials analyst Jay Van Sciver explains why he thinks Trump uncertainty is already priced-in, but skittish investors are missing the positives:
- Kansas City Southern’s multiple is cheaper than usual.
- Van Sciver sees robust growth ahead (cost savings and favorable profit outlook).
- Van Sciver thinks M&A speculation will heat up again and close the gap between where it is trading now and its historically premium valuation.