YRC Worldwide (YRCW) has been trading well below $1.00/ share for roughly three months. The stock was slammed with its restructuring from short sellers who kept shorting YRCW stock to the level where YRCW debt could be swapped for equity, at what I read was near $.34-$.40. Some nice arbitrage position…
Despite shareholder dilution, I do firmly believe that YRC Worldwide, who has been considering a reverse stock split to meet listing requirements, might actually postpone the reverse stock split for several reasons: the company can become profitable sooner than most thought, the stock price will pop above $1.00, and a single-digit stock can entice investors to get in for the long-term.
On April 8, 2010, Chief Executive Bill Zollars stated the following: "With the improved operating momentum we achieved as we exited the seasonally slowest quarter of the year, we have even more confidence in our ability to generate positive EBITDA beginning with the second quarter of 2010." As the economy turns, the trucking industry over the next decade or so will emerge stronger than ever. I should note that UPS came out just the other week with a solid quarter and positive outlook. YRCW’s total shipments per workday have increased month over month from January through March and I suspect we will see the trend continue. The shipment activity is still bluntly weak relative to the same period a year ago, but I firmly believe that if investors wait for the levels to resume back to where they once were, the entire upside movement in the stock will be missed.
YRC Worldwide was derailed from its journey to $1.00 the other week when YRCW president and COO Timothy Wicks resigned. Usually, when an executive resigns without reason, concern is warranted. In this case, Wicks went back to his previous employer, United Healthcare. Wicks’ decision to do so was not a reason to derail the stock 9-10%. Nonetheless, as the market digested the data, the stock began to resume its trend higher, touching $.80 on the morning of April 26, 2010.
YRC Worldwide has until August 30, 2010 to get its shares above $1.00 and keep its bid above that mark for ten consecutive days otherwise the company will be delisted. When YRC reports their data on May 4, I do expect a surprise and cautious, yet positive outlook. The positive outlook alone could provide investors with enough confidence to buy shares. The short interest of the stock is less than 2% of the float potentially because the short sellers already shorted the stock and converted their bonds into equity. YRC Worldwide has been trading on heavy volume recently. I also enjoy how there are 4 hold and 7 strong sell ratings on the stock complimented with no moderate or strong buy ratings.
I should also note that the Jan 11 calls with a strike of $1.00 are only trading at a $.21 - $.22 bid ask spread. The Oct 10 $1.00s are trading at a bid ask spread of $.18 - $.20. If the extra time, theoretically speaking, is only $.01-$.02 more expensive, I would load up on the Jan 11 $1.00s if I hadn't already acquired July calls.
As construction bottoms (consider previous posts) and the economy grows, YRC will prosper. YRC transports a broad array of commercial, industrial, and retail goods. Just today, Caterpillar and Whirlpool announced rising demand for some of their products. Both companies also gave a positive outlook – YRC on May 4, might also do the same.
Full disclosure: Long YRCW calls at time of writing.
