How Yellow’s Shutdown Will Help Other Trucking Stocks

The news of impending bankruptcy comes days after the company averted a strike by the union workers. Saddled with debt—about $1.5 billion as of last year—Yellow’s two operating companies deferred making required contributions to the health and welfare and pension funds, threatening the benefits of its workers. It has also been embroiled in a drawn-out standoff with the union on contract renegotiations.

“Today’s news is unfortunate but not surprising…This is a sad day for workers and the American freight industry,” Teamsters General President Sean O’Brien wrote.

TD Cowen analyst Jason Seidl, Matt Elliott, and team see the fallout benefiting other less-than-truckload shippers, or companies transporting freight that doesn’t require a full truckload. The rationale is that Yellow held 8% to 10% of the market share and its freight now gets diverted to other shippers who could enjoy more robust volumes and pricing going forward, the analysts wrote in a note on Monday.

While acknowledging that a Yellow failure would be a tide that could lift all less-than-truckload companies significantly, the analysts favor
ArcBest
(ARCB) and rate its shares at Outperform. One reason is that ArcBest’s freight is more compatible with Yellow’s freight than its competitors, the analysts wrote in a note on June 28.

ArcBest also had a spare capacity of 15% to 20% before mid-June, TD Cowen said. The team estimated a potential earnings per share gain of 8% to 32% due to Yellow’s demise, one of the highest among all competitors.

ArcBest reported earnings of $1.54 per share on Friday, badly missing analysts’ estimate of $2.04 per share. Still, the stock moved up 0.5% to close at $119.41. Shares closed down 2.6% on Monday. TD Cowen has a price target of $145.

Other stocks, TD Cowen likes are Canadian trucking company
TFI International
(TFII) and freight transportation company
XPO
(XPO). Both stocks are rated at Outperform.

Write to Karishma Vanjani at [email protected]