Yellow Corporation (YELL): recent developments suggest an improving situation, but risks remain
Although it is one of the smallest trucking companies, by market capitalization, in the United States, yellow society (NASDAQ: YELL) also has to be one of the most iconic and well-known actors in space. Unfortunately, the financial performance of this company has not been all that fantastic the past few years. And with the general market decline, shareholders felt a lot of pain. But it is possible that this picture is changing. Indeed, on May 17, 2022, the company’s shares closed 26.3% higher than they had closed a day earlier in response to a rather exciting development regarding the company’s top brass. . This could be indicative of the worst for the company that is coming to an end. Although investors are still advised to be cautious about the future of the company.
Assessment of recent developments
The last time I wrote about Yellow Corporation was in September 2021. At that time, I called the trucking service company a mediocre business in a mediocre industry. I did say that stocks could go up nicely, but only if management can stabilize the company. And I also recognized that, all things considered, the company was probably quite valued compared to its peers. Since then, the broader market has taken a heavy hit, with the S&P 500 falling 7.9%. Given the inflationary pressures, particularly with respect to wages and fuel costs, the trucking industry has been affected quite significantly. For Yellow Corporation, this materialized in the form of a 24.6% decline in the company’s share price. This is after taking into account the price surge that stocks experienced on May 17th.
The rise in the company’s stock was driven by decisions made by some of the company’s top brass. The news broke that the Yellow Corporation CEO had acquired 26,000 shares of the company for a weighted average price of $3.92. The COO also bought an impressive amount, totaling 18,844 shares in total, with a weighted average purchase price of $3.95. And the CFO bought 5,000 shares for $3.86 each. As large as all of these purchases are, they all pale in comparison to the 53,150 shares that one of the company’s directors, Matthew Doheny, acquired at a weighted average price of $3.83. In total, these four top executives paid just under $400,000 for a total of 102,994 shares.
Given the company’s current number of shares, this equates to 0.2% of all outstanding shares. At first glance, it may seem unreasonable that stocks have risen so much in response to this type of move. However, proper context is needed. For example, as of April 4 of this year, the company’s 16 most important people, made up of its directors and officers, possesses only 3.1% of the outstanding shares. Those who acquired shares in this recent move represented four of the seven largest of these shareholders. It’s also worth noting that, relative to the number of shares each member owned prior to the trades, the one with the largest percentage increase in ownership was Matthew Doheny. He effectively increased his stake in shares of Yellow Corporation by 25.6%. Next up was the COO, Darrel Harris. Its stake increased by 18.3%. He was followed by CFO Daniel Olivier with a 12.4% increase. And finally, CEO Darren Hawkins increased his holdings by 6.5%. That’s pretty small by comparison, but it’s also worth noting that, using April 4 numbers, he already owned 25.5% of all shares held by the top 16 individuals I mentioned.
When so many senior executives in a company start buying stocks, it can be a sign that things are about to change. Certainly, we have seen improvements lately for the company. For example, we need only look at financial performance covering first quarter of the company’s 2022 financial year. During this quarter, revenues reached $1.26 billion. This represents a 5.2% increase from the $1.20 billion generated a year earlier. The company also saw its net loss improve, from $63.3 million in the first quarter of last year to $27.5 million this year. Operating cash flow also improved from negative $38.8 million to negative $33.5 million. However, if we adjust for changes in working capital, the picture looks even better, with the metric changing from negative $17 million to positive $14 million. Meanwhile, the company’s EBITDA also improved, from $13.2 million in the first quarter of last year to $52 million in the same period this year.
In a way, shares of Yellow Corporation are also quite cheap. If we use data from the company’s fiscal years 2020 and 2021, it’s trading quite low on an adjusted price/operating cash flow basis. Using our 2020 results, this multiple is 1.7. Meanwhile, using 2021 numbers, the multiple is only 1.5. To put this into perspective, I decided to look at five similar companies. These companies ranged from a low multiple of 3 to a high multiple of 5.6. Our prospect was the cheapest of the bunch. The picture changes, however, when we look at it through the lens of the EV/EBITDA multiple. In this case, using our 2021 results, the multiple is 5. Meanwhile, if we use 2020 results, the multiple increases to 8. Using the same five companies as in the price/cash flow scenario d exploitation, I calculated multiples ranging from 2.4 to 6.2. According to our 2020 data, Yellow Corporation was the most expensive of the bunch. Even if we use 2021 results, four of the five companies were cheaper than our target. All of this is tied to a fairly large leverage that Yellow Corporation currently has. Using our 2020 numbers, the company has a net leverage ratio of 6.8. That drops to 4.3 if our 2021 numbers are more indicative of the company’s outlook. No matter how you stack it, they’re not exactly big numbers.
|Company||Price / Operating Cash||EV / EBITDA|
|US Xpress Companies (USX)||3.0||6.2|
|American truck (USAK)||4.0||2.5|
|Covenant Logistics Corp (CVLG)||3.7||2.4|
|PAM Transportation Services (PTSI)||5.6||4.2|
Right now, investors in Yellow Corporation are incredibly excited about the company and its prospects. On the positive side, we have a few leading indicators to work with. The first was when the company released financial results covering the first quarter of its fiscal year 2022. That data was clearly better across the board than it was a year earlier. And perhaps more telling is the news of stock purchases by the aforementioned people. On the other hand, the company’s recent past has not been great and leverage is an issue. Add to that concerns about the broader economy, and it’s not unthinkable that the company could be in a lot of pain for an extended period of time if things don’t go well. As for me, given the drop in price I’ve seen since I started talking about the company and the weighing of the pros and cons I just mentioned, I think a rating “ hold” is appropriate for now.