Last time around when I posted a similar article, YRCW was trading in the range of $3.23 and $3.38. Yesterday, the stock established 52 week low of $1.19 and traded in the range of $1.19 and $1.40. Investors hit the panic button as the company disclosed in a SEC filing that it may have to file for bankruptcy protection if it defaults on some debt. While the filing says that creditors have not yet declared a default, they could because of the company's failure to meet some terms of its commitment. Earlier this month YRCW said that it was negotiating a significant restructuring with lenders and union workers that would give "significant majority" of the company's equity to debt holders. Can the company stay afloat? Will that dilution hasten YRCW shares falling to penny stock levels? Can the company pull-off to defy the current trend and hit analysts' one year target price of $2.5 within 12 months? These are serious and pertinent questions but the answers are hard to seek.
In my last article, I sounded optimistic about the company's turnaround in financial performance. Indeed the company's results for Q4-2010 sustained the turnaround seen in Q3 and Q2. Analysts maintained the stance that if the company stays afloat then it can breakeven by 2013 and grow its earnings at an average annual rate of 15.0% until 2015. However, the key question is ‘how long can it avoid bankruptcy?' - If not insiders who else can answer that question.
In the last three months, the number of insider trades was eight, all of those being ‘sell'. On the face of it, it looks the management has lost the belief that they can keep the company afloat. All of the insiders who sold their YRCW shares do still hold significant number of shares. So, it would be wrong to assume that they don't fancy any chance of revival.
Let's look at institutional players. Fifty six institutions have completely sold out their positions while only 18 have taken new position – this means that institutions think that bankruptcy is more likely. This is also confirmed by the fact that 76 have decreased their takes while only 37 have increased their stakes.
Stock price projection
Log-normal random walk based on historical parameters of the stock suggests that the stock indeed faces the risky of turning penny stock (price below $1) within the next six months. Random walk also suggests that the company could go bankrupt within the next six months. It also suggests that the stock could hit analysts' one year target price within the next six months.
Technical analysis (short to medium to long term indicators) also suggests that YRCW share is a prime candidate to be sold. However, which way the price will develop depends a lot on how successful is the management in dealing with debt management.
Net on net
YRCW's 10-K highlights the progress being made in its restructuring efforts, but also indicates an agreement was not reached with multi-employer pension plans by the specified date. In light of a general willingness of its creditor groups to make concessions up to this point, and improvements achieved in YRCW's underlying operations (as indicated by improving quarterly results), I am optimistic that an agreement could be reached. However, I still view YRCW as a high risk investment, where current equity holders face considerable dilution from further share issuance. I decline to provide any stock valuation for YRCW at the moment.