Second-half of two part article http://www.beaconequity.com/is-yrcw-the-next-spng-part-i-2010-07-28/
Remember the Summer Lovin’ with SPNG? We’re betting YRCW could be Just as Fun!
BlackRock, Berkshire Hathaway’s Warren Buffett and the world’s largest hedge fund manager John Paulson of Paulson & Co. have all taken huge stakes in an imminent U.S. economic recovery. BlackRock—the world’s largest institutional money manager—said it’s now overweight U.S. stocks. Buffett—who bought Burlington Northern for $34 billion—now has what he said is an “all-in wager on the economic future of the United States.” And John Paulson—the manager of the world’s largest hedge fund—is betting big on CitiGroup in anticipation of a U.S. economic recovery.
These big men with the biggest money have put their own wallet and ego on the line for what could be one of the biggest payoffs in U.S. history (given the historical wide spread between bond yields and P/E ratios). YRCW’s prospects are correlated to these men’s monstrous bets that P/E ratios will expand to reflect some semblance of parity with a ridiculously low interest rate environment.
The U.S. economy and the stock market should trend upward from here because of the “significant stimulus” injected into the economy by the Fed, said BlackRock’s Doll. We think BlackRock’s Doll has it right. If Doll is indeed right, YRCW’s fire-sale price and very high beta of 2.31 make it a strong candidate for soaring prices in this upcoming readjustment period in valuations.
Fundamentally, as YRCW trades at nearly 20 cents on the dollar to the company’s Enterprise Value, traders expect the company to enter bankruptcy protection. A mere 50/50 bet that YRCW will avert bankruptcy should take the share price to reflect, at least, its Enterprise Value, which calculates to nearly $1.50 per share.
And any hint of a projected profit to materialize sometime in 2011 could take these shares into another SPNG joy ride of a 10 to 20 bagger for investors. And that’s what we expect—a shock to the bears. We see the bears already short covering to save their lives. We anticipate more short covering in the coming weeks.
A 10-bagger sounds far-fetched? A $5 share price would imply 34 cents in earnings and a 14-times earnings multiple. Even with the dilution of its pre-crash total outstanding shares, a resumption to reasonable $85 million quarterly profits (approximately 5% profit on slightly higher than 2009 total revenue) due to a normalization of economic conditions could take YRCW beyond five bucks.
This outcome is not far-fetched at all. With a lot of heavily invested smart money betting this is, indeed, the most likely scenario, we feel going with the smart money isn’t a bad idea. In fact, we’re expecting a lot of sleepless nights wondering whether we’ve had too much fun playing YRCW, and should consider selling our 10-bagger.
YRCW reports second-quarter earnings on August 3. We’ll be listening carefully for management’s guidance.
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You’re clueless. When YRCW did 9.6 billion in revenue and made 500 million per year the highest their market cap ever reached was 3.6 billion.
Now, you are suggesting that a company that has less than half the revenue they once had and no current profits suddenly warrants a market cap of over 5 billion???
Only one LTL trucker trades at a valuation of more than one times sales and that is ODFL. They are “best in class”. Others trade at an average of .4 times sales which would get YRCW to a max price of $1.50.
However, YRCW is receiving 30 million per month of pension payment forgiveness that expires this January. YRCW is enjoying a 15% wage cut from their employees. YRCW enjoys 25 million per quarter of deferred bank interest that starts back up again in 2011.
Furthermore, YRCW has already indicated a desire to raise 100 million in cash by triggering their shelf registration. This will dilute the common shareholder by adding 200-250 million shares of common stock.
You guys better do a little more research on this one.