KNX Knight Swift Transportation Holdings Inc

We upgrade our recommendation on YRC Worldwide Inc. (YRCW) on the basis of current valuation. During the last two and half years, YRC Worldwide is reeling under bankruptcy threat resulting from a significant fall in freight volume coupled with its highly leveraged balance sheet. Consequently, the stock price plummeted by a massive 90% in last year. We believe this significant low-level of valuation may provide a cushion and restrict further downslide to the stock price.

YRC Worldwide reported a mixed result for the first quarter of 2011. Although the U.S. trucking industry is recovering from recession, YRC Worldwide fails to cope with this current recovery. The company’s viability depends on its ability to become profitable but unfortunately, we do not expect it to reach that stage any time soon. Off late, management has taken some measures such as an aggressive pricing strategy and emission control to streamline operations. 

In April 2011, YRC Worldwide entered into a definitive agreement with its secured lenders, pension funds, and the International Brotherhood of Teamsters to inject new capital to improve the company’s sagging liquidity condition. This restructuring plan will inject $100 million in new capital to eliminate a portion of the debt and is expected to be closed by July 22, 2011. However, if this deal is successful, then the lenders will get 72.5% equity control and labor union will get 25% equity control, leaving a mere 2.5% control for the existing shareholders of the company.

The trucking industry is highly competitive. YRC Worldwide is gradually loosing market share to its competitors Arkansas Best Corp. (ABFS), Con-way Inc. (CNW) and Knight Transportation Inc. (KNX). Additionally, as a truck transportation company, YRC Worldwide is highly leveraged to the domestic economy (particularly manufacturing and retail) and inventory levels.

 
ARKANSAS BEST (ABFS): Free Stock Analysis Report
 
CON-WAY INC (CNW): Free Stock Analysis Report
 
KNIGHT TRANSN (KNX): Free Stock Analysis Report
 
YRC WORLDWD INC (YRCW): Free Stock Analysis Report
 
Zacks Investment Research