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Why YRC Worldwide Stock Just Crashed 16%

By Rich Smith - Aug 25, 2020 at 11:57AM

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A Wall Street analyst upgrades the stock. Investors panic anyway.

What happened

Shares of trucking company YRC Worldwide (YELL -1.20%) are down a staggering 16.2% in 11 a.m. EDT trading this morning -- rather an extreme reaction, one must say, to the news that sparked the sell-off. In fact, I'll bet that right about now, the analysts at Stifel Nicolaus are feeling more than a little bit shocked.

Stifel Nicolaus, you see, appears to be the catalyst that sparked today's sell-off -- or rather, a report published by Stifel this morning, resuming coverage of YRC stock.

Cartoon man in suit and tie tugging on a pulley to lift up a falling stock chart arrow.

Image source: Getty Images.

So what

In today's report, summarized by StreetInsider.com, Stifel resumed covering YRC Worldwide stock with a "neutral" rating (not even a "sell") and a price target of $5 (which is to say, 18% more than where the stock is now trading).

As the analyst reports, YRC has succeeded in securing a "much-needed loan" of $700 million from the U.S. government, which will give the company "financial breathing room" that allows it to purchase new equipment and to refinance its debts "for years."

Now what

With this loan in hand, says Stifel, YRC can now "continue operations into 2021." But what happens after that?

YRC, after all, is a money-losing company that was losing money even before the COVID-19 pandemic tipped the economy into recession. Indeed, YRC lost money in two years out of the last five and avoided unprofitability by the skin of its teeth in one more year (2015). Its debt load -- $1.2 billion -- dwarfs the company's $220 million market cap. With the addition of $700 million in new loans from the government, it now probably owes closer to $2 billion.

In short, even if Stifel is right about YRC surviving "into 2021," the question of whether it can survive any longer than that remains highly uncertain.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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