Critical Survey: Covenant Transportation Group (NASDAQ:CVTI) vs. Kansas City Southern (KSU)

Kansas City Southern (NYSE: KSU) and Covenant Transportation Group (NASDAQ:CVTI) are both transportation companies, but which is the superior stock? We will compare the two businesses based on the strength of their risk, earnings, analyst recommendations, institutional ownership, profitability, dividends and valuation.

Dividends

Kansas City Southern pays an annual dividend of $1.44 per share and has a dividend yield of 1.3%. Covenant Transportation Group does not pay a dividend. Kansas City Southern pays out 28.3% of its earnings in the form of a dividend. Covenant Transportation Group has raised its dividend for 4 consecutive years.

Risk & Volatility

Kansas City Southern has a beta of 0.87, indicating that its stock price is 13% less volatile than the S&P 500. Comparatively, Covenant Transportation Group has a beta of 1.68, indicating that its stock price is 68% more volatile than the S&P 500.

Valuation and Earnings

This table compares Kansas City Southern and Covenant Transportation Group’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Kansas City Southern $2.33 billion 4.88 $478.10 million $5.09 21.61
Covenant Transportation Group $670.65 million 0.79 $16.83 million $0.69 41.83

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

Institutional & Insider Ownership

83.6% of Kansas City Southern shares are owned by institutional investors. Comparatively, 63.3% of Covenant Transportation Group shares are owned by institutional investors. 1.0% of Kansas City Southern shares are owned by company insiders. Comparatively, 35.2% of Covenant Transportation Group shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company is poised for long-term growth.

Profitability

This table compares Kansas City Southern and Covenant Transportation Group’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Kansas City Southern 21.42% 11.86% 5.88%
Covenant Transportation Group 1.82% 5.30% 2.02%

Analyst Recommendations

This is a summary of recent recommendations for Kansas City Southern and Covenant Transportation Group, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Kansas City Southern 0 7 8 0 2.53
Covenant Transportation Group 0 1 1 0 2.50

Kansas City Southern presently has a consensus target price of $112.86, indicating a potential upside of 2.60%. Covenant Transportation Group has a consensus target price of $25.25, indicating a potential downside of 12.51%. Given Kansas City Southern’s stronger consensus rating and higher probable upside, analysts clearly believe Kansas City Southern is more favorable than Covenant Transportation Group.

Summary

Kansas City Southern beats Covenant Transportation Group on 12 of the 17 factors compared between the two stocks.

Kansas City Southern Company Profile

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.

Covenant Transportation Group Company Profile

Covenant Transportation Group, Inc. is a provider of expedited long haul freight transportation, primarily using two-person driver teams in transcontinental lanes. The Company’s services also include refrigerated, dedicated, cross-border, regional and brokerage. The Company’s segments include Truckload and Other. The Truckload segment includes the operations of Covenant Transport, Inc. (Covenant Transport), its flagship operation, which provides expedited long haul, dedicated, temperature-controlled and regional solo-driver service; Southern Refrigerated Transport, Inc. (SRT), which provides primarily long haul, regional, dedicated and intermodal temperature-controlled service, and Star Transportation, Inc. (Star), which provides regional solo-driver and dedicated services, primarily in the southeastern United States. The Company provides truckload transportation services throughout the continental United States, into and out of Mexico, and into and out of portions of Canada.

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