Karl Francis

YRC Worldwide: Covered Call Opportunity

The whole trucking sector probably trades near the bottom of the cycle. Demand seems to have stabilized while supply continues to shrink . Recent tariff increases by Fedex freight and UPS freight indicate improving pricing power.

YRCW is particularly cheap by all relevant metrics. Price/Sales .13, EV/Ebitda: 3.87 (source: Yahoo).

The company is trading at 7 times estimated bottom earnings. Usually, truckers trade at much higher bottom multiples. Analyst estimates do not fully include the current cost cutting initiatives, which should add 1$ after tax to earnings in 2008.

The company has a logistics unit which alone is worth the current market cap.

With Yellow and Roadway, it has two leading, highly regarded, national wide operating LTL carriers which offer a level of services that few competitors can match.

It has recently finished negotiations with the unions and has obtained significant concessions from the teamster negotiators in order to keep personal costs competitive.

The company shows somewhat more debt on its balance sheet than some competitors, but owns 90% of its trucks (compared to mostly leasing)

Peak earnings power in the next up cycle should be between $6 and $9 per share. I suggest a buy and hold strategy for one to three years with 300% to 500% stock price appreciation potential. If the stock price doesn’t appreciate significantly, a take over is very likely.