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Why YRC Worldwide Stock Dropped 14%

By Rich Smith - Nov 9, 2018 at 6:07PM

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Stifel waves the yellow flag of surrender.

What happened

Shares of trucker YRC Worldwide ( YELL 11.26% ) closed down 14% on Friday after analysts at Stifel Nicolaus -- who had previously recommended the stock in hopes of seeing at least "one good quarter" of growth -- finally gave up and admitted that quarter "may not come."

Stifel downgraded YRC stock to neutral today, and noted that the analyst also cut the price target by more than half, to just $7 a share.

Truck driving downhill on a narrow mountain road.

Pushed over the edge by Stifel, YRC Worldwide stock continued running downhill today. Image source: Getty Images.

So what

Given that YRC stock was already trading close to $7 when this downgrade came out, you might have expected investors' reaction would be a shrug -- but no such luck. Instead, Stifel's lamentation that, despite a strong market for less-than-freightload trucking this year, YRC "has fallen short of expectations" and "failed to return to 2015-16 levels of profitability" appears to have sapped investor confidence.

When Stifel then proceeded to observe that YRC's labor contract with its drivers expires in just a few months, raising the specter of a potential strike, it sparked a rout in the stock.

Now what

With YRC stock now trading below Stifel's revised target price, there's still the potential for the stock to bounce back if investors decide they overreacted to today's downgrade -- but the company will need to do its part to encourage investors to come back. YRC is currently unprofitable, but Wall Street analysts still hope to see it end this year with a profit of $0.66 per share.

If YRC can prove them right in Q4, there's still a chance for a rebound before contract negotiations begin.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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