By Yellow, one of the largest and oldest trucking companies in America, recently announced its decision to cease operations as it prepares to file for bankruptcy. This development could potentially have an impact on the stocks of rival freight companies, making them more attractive to investors.
The International Brotherhood of Teamsters, a union that represents the warehouse and freight drivers of Yellow, was notified of the company’s insolvency filing on Monday, as stated on their website. On Friday, Yellow sent a notice to its customers, officially announcing its closure, according to a report by The Wall Street Journal. As of now, Yellow (previously known as YRC Worldwide) has not responded to ‘s request for comment.
The news of Yellow’s impending bankruptcy comes shortly after the company managed to avert a strike by union workers. The company has been burdened with a significant amount of debt, with approximately $1.5 billion as of last year. To make matters worse, Yellow’s two operating companies have deferred making required contributions to health and welfare and pension funds, which has put the benefits of its workers at risk. Additionally, the company has been engaged in a protracted standoff with the union over contract renegotiations.
Teamsters General President Sean O’Brien expressed his disappointment with the situation, stating that while the news is unfortunate, it is not entirely surprising. He described it as a sad day for workers and the American freight industry as a whole.
The Fallout from Yellow’s Failure: A Potential Boon for Less-than-Truckload Shippers
Introduction
In light of the potential failure of Yellow, an industry-leading trucking company, TD Cowen analysts Jason Seidl, Matt Elliott, and their team anticipate a positive outcome for other less-than-truckload shippers. With Yellow holding a significant market share of 8% to 10%, the diverted freight presents an opportunity for other companies to experience increased volumes and improved pricing.
ArcBest: A Strong Contender
Among the various less-than-truckload shippers, TD Cowen analysts believe that ArcBest (ARCB) is well-positioned to capitalize on Yellow’s demise. In a note dated June 28, the analysts highlight the compatibility of ArcBest’s freight with that of Yellow, giving them a strategic advantage over their competitors.
Additionally, TD Cowen notes that ArcBest had spare capacity ranging from 15% to 20% before mid-June. Consequently, the team estimates a potential earnings per share gain of 8% to 32%, ranking ArcBest amongst the top performers in this new landscape.
Despite missing analysts’ estimate of $2.04 per share, ArcBest reported earnings of $1.54 per share on Friday. This setback did not hinder the stock as it still managed to increase by 0.5% and close at $119.41. However, on Monday, shares closed down by 2.6%. TD Cowen has set a price target of $145 for ArcBest.
Other Recommended Stocks
Apart from ArcBest, TD Cowen also favors Canadian trucking company TFI International (TFII) and freight transportation company XPO (XPO). Both stocks have received an Outperform rating from the analysts, indicating their potential for success in the current market conditions.
In conclusion, the potential fallout resulting from Yellow’s failure opens up new opportunities for less-than-truckload shippers. ArcBest, with its advantageous position and spare capacity, shows promise for strong earnings growth. Likewise, TFI International and XPO are also recommended as attractive investments by TD Cowen analysts.
Originally published by Karishma Vanjani at Dow Jones.
Comments