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YRCW April 30 2014 Short Interest And 2nd Q Earnings

|Includes: YRC Worldwide Inc. (YRCW)

The April 30 short interest was released after the close on Friday, May 9.

Between April 15 and April 30, the short interest declined from 5,352,079 shares to 4,584,710 shares. Since October 31, 2013 the short interest has been higher every two weeks until now. Shares were shorted as the stock went down to 7 in November and shorted into the high of 26 in March. Shorting looked like a sure thing since the dilution has been a tripling of the shares outstanding from 10 million to over 30 million. But the stock has NOT declined two thirds in value as the shares outstanding have tripled. The stock rose from a low of 7 to a high of 26 and has now settled around 20 while the market cap has risen from a low of $70 million in November to a high of more than $700 million; about $620 million now.

This time shorts covered their positions. YRCW moved up from a low of 18.5 to a high of 22.99 in those two weeks while daily trading volume declined to less than 600,000 shares per day. The aggressive shorts in YRCW have more than enough capital to handle a move of $2.5 million against them, but chose to cover, NOT to short some more.

If aggressive shorts are covering their positions as the stock goes up only three points, it makes sense to picture YRCW going much higher. This year, since January 27, YRCW has not filled the gap between the breakout above the January 17 close of 15.82 to the January 27 low of 16.26. Aggressive shorts would be looking to cover their positions in that gap, but unless there is another negative earnings surprise for the second quarter, or the market as a whole drops 20%, that gap is not likely to be filled.

From now until the 2nd Q 2014 earnings report on July 31, the downside risk is to the January 27 low of 16.26 and the upside potential is to the July 11, 2013 high of 36.99. New speculators in YRCW here are risking 20% down to make 80% up. reports a consensus estimate of 4 cents a share. That's net earnings AFTER taxes of more than a million -- something that hasn't happened in more than six years.

On the most recent conference call Welch said shipments are up about 6% versus last April and margins in new shipping contracts are up 3 to 4%. A severe negative earnings surprise for the 2nd Q -- a $30+ million loss instead of the expected S1+ million net income will see that gap filled. A drop in the stock to the April 2012 low of $5 a share could occur. Proof that the turnaround is destined to fail and bankruptcy likely would be if short interest is very low if and when a severe negative earnings surprise is reported. When a firm turns out to be a real loser, NO ONE makes money on the loss, not even the shorts.

Disclosure: I am long YRCW.