Article written by Al Root
Trucking company YRC Worldwide shares are up 130% in premarket trading after getting a huge loan from the government. The move illustrates some important financial math. More important, it shows that it pays to have friends in high places.
“We would like to thank Congress for passing the CARES Act and the U.S. Department of the Treasury for providing this vital funding,” said YRC (ticker: YRCW) CEO Darren Hawkins in the company’s news release. “Through our work with over 200,000 customers, including being a leading transportation provider for the Departments of Defense, Energy, Homeland Security, and Customs and Border Protection.”
LTL is typically shorter haul that TL, or truck-load shipping.
The question for investors: Will other trucking firms get the same benefit? Old Dominion Freight Line (ODFL), Saia (SAIA), XPO Logistics (XPO) and ArcBest (ARCB) are four other LTL service providers.
None of those four, however, mention the DoD in a similar way to YRC. What’s more, that quartet is far larger than YRC and the stocks have performed much better year to date. Old Dominion stock, the best performer, is up 34% year to date, as of Tuesday’s closing price. ArcBest, the worst performer, was down only 3.9%.
Logistics companies, for the most part, have kept working through the pandemic and share prices have outpaced comparable returns of the Dow Jones Industrial Average and S&P 500.
YRC is a large company with a tiny stock. It has 30,000 employees and 200,000 customers, but its market capitalization is less than $70 million as of Tuesday’s closing price. The company has more than $1 billion in debt and the CARES Act loan will be $700 million dollars. The improvement on the debt side of the equation has a huge impact on the equity side.
Shares were down about 27% year to date, as of Tuesday’s closing price. Now shares are at $4.44 in premarket trading, pushing shares up 74% year to date.
YRC will also issue the U.S. treasury about 11 million shares, or almost 30% of the stock outstanding. It’s a large chunk of stock, but the dilution can’t overwhelm the benefits of fresh liquidity.
A one-day move in another logistics provider might be difficult to replicate, but the episode illustrates the importance of reading regulatory filings to pick up little tidbits like critical supply relationships with large, well-capitalized customers.