Why Kansas City Southern's Shares Dropped 12% Today

What: Shares of railroad company Kansas City Southern fell as much as 12% on Friday after it reported third-quarter earnings.

So what: Revenue fell 7% from a year ago to $632 million and net income fell 5% to $131.5 million, or $1.20 per share. Adjusted earnings per share, which pulls out one-time costs, were $1.21 per share and a penny behind estimates, but revenue was below the $639.4 million analysts expected, and that spooked investors.

Now what: Kansas City Southern barely missed earnings estimates, so I wouldn't panic too much if I were a shareholder. What's concerning is that revenue and earnings are both on the decline and shares trade at a lofty 19 times trailing earnings.

That high valuation would keep me away from shares today, but this is a steady company that isn't in dire straights by any means. If shares continue to fall, there could be good value for investors, but I would like to see shares below 15 times earnings before thinking there's great value in this railroad stock.

The article Why Kansas City Southern's Shares Dropped 12% Today originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.