Yellow, One of America’s Largest Trucking Firms, Announces Impending Bankruptcy
Yellow, a prominent and long-standing trucking company in the United States, has ceased operations and is preparing to file for bankruptcy. This unexpected development may offer an opportunity for rival freight companies to gain a competitive edge.
Yellow (ticker: YELL) recently informed the International Brotherhood of Teamsters, a union that represents the company's warehouse and freight drivers, about its intention to file for insolvency. The Wall Street Journal reported that on Friday, the company also issued a notice to its customers regarding its imminent closure. Despite this public announcement, Yellow, formerly known as YRC Worldwide, did not respond to our request for comment.
The announcement of Yellow's impending bankruptcy comes shortly after the company narrowly avoided a strike by its union workers. With a substantial debt burden of approximately $1.5 billion as of last year, Yellow's two operating companies have been unable to meet their required contributions to the health and welfare and pension funds. Consequently, this has posed a significant threat to the benefits and financial security of its workers. Additionally, Yellow has been engaged in a lengthy dispute with the union regarding contract renegotiations.
Although today's news is unfortunate yet not entirely surprising, it undoubtedly marks a somber day for both workers and the overall American freight industry. Teamsters General President Sean O'Brien expressed his dismay, stating, "This is a sad day for workers and the American freight industry."
The Fallout from Yellow's Demise: Opportunities for Less-Than-Truckload Shippers
TD Cowen analyst Jason Seidl and his team have identified potential opportunities for less-than-truckload shippers following the recent downfall of Yellow, one of the leading players in the industry. As Yellow's freight is now being diverted to other shippers, these companies stand to benefit from increased volumes and potentially more favorable pricing.
According to the analysts, Yellow previously held a significant market share of 8% to 10%, meaning that its absence creates a gap that other shippers can fill. In light of this, the analysts have singled out ArcBest as a top pick. They believe that ArcBest's freight is particularly compatible with Yellow's, giving it a competitive edge over other players in the market.
Additionally, TD Cowen highlights the fact that ArcBest had spare capacity of 15% to 20% before mid-June. This surplus capacity positions ArcBest to capture a significant share of the newly available freight, leading to estimated earnings per share gains of 8% to 32% - among the highest in the industry.
Despite missing analysts' estimates with earnings per share of $1.54 (compared to the expected $2.04), ArcBest's stock still managed to make slight gains, closing at $119.41, a 0.5% increase. However, it did experience a 2.6% decrease on Monday. TD Cowen maintains a price target of $145 for ArcBest.
Aside from ArcBest, TD Cowen also recommends investing in Canadian trucking company TFI International and freight transportation company XPO. Both stocks are rated as Outperform.
Overall, the demise of Yellow presents a unique opportunity for less-than-truckload shippers to expand their market share and capitalize on increased demand. With ArcBest being specifically positioned to benefit from Yellow's absence, investors may find it worthwhile to consider this stock for potential gains.
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