The long-expected turnaround from YRC Worldwide Inc. (NASDAQ: YRCW) remains elusive despite the gains we are seeing in the stock so far today.  Even after a reverse stock split, YRC Worldwide has seen its shares slide and slide, hitting a low of $1.19.  About the only good news that can be found is that this last month has generated a gain in the stock of about 50%.  That is a big move even for a penny stock, but the problems here are still coming.  This one was the beneficiary of the earnings report from JB Hunt Transport Services Inc. (NASDAQ: JBHT) last week, although the exact relationship is a bit like comparing apples to rotten eggs.

Zacks Equity Research nailed this one with a recent downgrade to “Underperform” and slapped it with the dubious “Bear of the Day” status per its research call.  That alone is not enough to kill it and some of the data looks more rear-view rather than far out on the horizon.  The big concern is that YRC disclosed that it missed “a major restructuring milestone” in early March and the fear is that creditors could declare that YRC Worldwide has effectively gone into default on its covenants.  That brings up yet one more possible bankruptcy protection filing, which almost amazingly has been avoided to date.

Our own worry has been over management changes at such a crucial time, coupled with a lack of recovery with sector peers and a very leveraged balance sheet.  Its most recent restructuring may even conflict with the hiring of additional sales staff.  Another development we cannot avoid noticing was a Moody’s corporate family rating downgrade to “Ca” from a “Caa3”: the probability of default went to “Caa3” from “Caa2” and the rating of its contingent convertible notes was cut to “Ca” as well.

YRC just went into its 1:25 reverse stock split on October 1, 2010.  This magically took shares from $0.25 back then to what would have been a split-adjusted price of $6.25 simultaneously.  Shares were back under $5.00 within ten days and briefly back under $4.00 within about two weeks.  YRC closed out 2010 at $3.72.

The good news is that Zacks is being treated as a reversal point today.  We also believe that the news of stepping outside of covenants in March may  have less of an impact than some expected.  If the company remains outside of its covenants, which is a risk, then it can take on a more serious turn.

YRC’s $90 million market cap is very misleading.  Its 2008 revenues were $8.9 billion and that was down to $4.33 billion in 2010.  YRC shares are up almost 4% at $1.89 today and its split-adjusted trading range of the last 52-weeks is $1.19 to $20.00.  Admittedly, shares will be significantly higher if more hints of a turnaround emerge.   If Zacks is correct, this trucking turnaround is going to be a train wreck for its common stockholders.

JON C. OGG

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