Docstoc

Yellow

Document Sample
Yellow Powered By Docstoc
					I. Yellow Roadway Corp. (YELL)

Investment Rating
       Sell
Pricing (10/10/05)
Closing Price          41.28
52-Week High           64.47
52-Week Low            38.81
52-Week Change         -14.87%

Valuation
FY (Dec.)            Dil. EPS         P/E
2003                   1.33           27.2
2004                   3.75           14.9
TTM                    4.73           8.73

Profitability & Effectiveness (ttm)
ROA                   5.3%
ROE                   17.19%
Profit Margin         3.36%
Operating Margin

Market Data
Total Assets           $3,627,160,000
Volume                 473,344
Market Cap             $2.39 B
Ave. Volume            1,357,900
EPS (ttm)              4.73
P/E (ttm)              8.73

Yellow Roadway Corporation, a Fortune 500 company, through its wholly owned subsidiaries,
provides transportation service worldwide. It offers asset and nonasset-based transportation
services. The company operates through four segments: Yellow Transportation, Roadway
Express, Roadway Next Day, and Meridian IQ. Yellow Transportation offers regional, national,
and international services for the movement of industrial, commercial, and retail goods.
Roadway Express segment offers long-haul, and interregional and regional less-than-truckload
freight services, which include apparel, appliances, automotive parts, chemicals, food, furniture,
glass machinery, metal and metal products, nonbulk petroleum products, rubber, textiles, wood,
and miscellaneous manufactured products. In addition, it also offers truckload services. Roadway
Next Day segment provides regional and next day ground services. Meridian IQ segment offers
international forwarding and customs brokerage, multimodal brokerage, domestic forwarding
and expedited, and transportation solutions and technology management services. As of
December 31, 2004, the company operated 721 freight terminals. The company was incorporated
in 1983 and is headquartered in Overland Park, Kansas. Yellow Corp. employs approximately
70,000 people. (http://finance.yahoo.com/q?s=YELL)



                                                                                                1
II. Executive Summary

Stock Performance
In 2004, shares of Yellow Corp. generated a return of more than 50 percent, significantly
exceeding the 9 percent return of the S&P 500. With a record stock price, the market
capitalization at the end of 2004 was $2.7 billion, which is nearly $1 billion more than at the end
of 2003. (http://yellowroadway-2004.vhostu.com/08.htm)

In 2005, price of the stock has fallen dramatically. In May, the price was over $60 per share, and
currently the price is $44. According to Yellow Roadway’s management, the drop off in price is
due to high oil prices and the disaster of Hurricane Katrina. They have currently devised a plan
to buy back 50 million dollars worth of company stock and they hope this will cause in increase
in price and will create more demand for the stock. Since the announcement, there has been little
change in the price of Yellow’s stock.

The transportation industry has dropped in returns also. Yellow had a 25% drop in return and the
industry had a 35% drops in returns as of last quarter. Yet, the industry has P/E ratio of 20.8%
and Yellow’s was at a depressing 8.7%.

Growth Possibilities

Yellow recently finished a deal with a China-based transportation company in a joint venture.
This is a good example of the company realizing the global economy and taking advantage of it.
China is one of the fastest growing economies in the world and Yellow has taken the first steps
to join that economy.

As I mentioned before, the company decided to reinvest 50 million dollars back into its own
company, but that is only about 2% of all the outstanding shares of Yellow. This is a positive
plan for the company and will cause positive growth opportunities for possible investors,
although I do not feel it is the solution for this company.

Investment Recommendation: SELL
Pros:
    Large company with a very large market capitalization on the market
    Recent buy back will increase EPS and cause interest for investors
    Recent merger with Roadway Corporation created 120% difference in returns from 2003
      to 2004
    Opportunity to expand with joint venture in China

Cons:
       Slowed growth recently because of oil prices and hurricane
       Prices and returns on stock have dropped almost 33%
       We have lost money on this stock
       Growth estimates are not meeting expectations




                                                                                                  2
III. Company Description

Yellow Transportation and Roadway Express have merged as of one year ago. They have
successfully completed this year as Yellow Roadway Corporation with record numbers. They
have more than 50,000 employees around the world are focused on execution. Profitable growth
is one obvious benefit of doing things effectively, and it is an excellent measure of the
company’s success. Yellow Roadway achieved a No. 1 ranking in their industry in Fortune
magazine’s list of “America’s Most Admired Companies” for the third consecutive year and, for
the first time, inclusion in the Forbes “Platinum 400 – The Best Big Companies in America.”
The potential for Yellow Roadway’s success in today’s global economy is tremendous. As the
expert in shipments that weigh more than 150 pounds, Yellow Roadway has a portfolio of brands
ready to handle the big shipments that keep in close touch with the moving global economy.
And, with more than 800 locations around the world, they can handle those shipments better than
anyone, at any speed, using any mode, on a global basis.

Yellow Corp. Subsidiaries

Yellow Transportation offers a full range of national, regional and international services for the
movement of industrial, commercial and retail goods. Through a broad array of innovative
customer solutions including Exact Express, Definite Delivery, Standard Ground and Standard
Ground Regional Advantage, Yellow provides customers with best-in-class service.

Roadway Express, a leading transporter of industrial, commercial and retail goods, offers a
variety of innovative services to meet customer needs, including Time-Critical, Time-Advantage
and Exhibit Transportation Services. In addition to seamless transportation throughout North
America, including Canada, Mexico and Puerto Rico, Roadway Express offers worldwide
services.

Reimer Express is a leading Canadian provider of industrial, retail and commercial transportation
services. The company’s fully integrated, state-of-the-art transportation system extends across
Canada, the United States, Mexico and Puerto Rico. Reimer Express is a subsidiary of Roadway
Express.

New Penn Motor Express provides superior quality regional, next-day ground services through a
network of facilities located in the Northeastern United States; Quebec, Canada; and Puerto
Rico. The company is recognized as an industry leader in information technology, with extensive
Internet-based applications for customers and innovative messaging and tracking systems.

Meridian IQ is a global logistics management company. Meridian IQ allows companies to
improve their transportation network and overall supply-chain efficiency by offering flexible
logistics solutions supported by Web-native technology and global logistics management
capabilities.
(http://yellowroadway-2004.vhostu.com/10.htm)




                                                                                                     3
IV. Economic and Industry Environment

A. Industries relation to economy

Sales Growth Potential

Yellow Roadway’s growth potential is enormous. They have this luxury because of their intense
effort to adapt to the global market. They recently bought half of the second-largest air freight
importer in China. Yellow reported in September that its Meridian IQ logistics subsidiary has
entered an agreement with Yellow's Chinese partner, Shanghai Jin Jiang International Industrial
Investment Co., to form a joint logistics company in China.

The company's chief executive officer, Bill Zollars, said he was interested in getting a foothold
in China, one of the fastest-growing economies in the world. Meridian IQ acquired Shanghai-
based GPS Logistics Group in March.

Increased demand for the product was obviously created with the new merger. The company is
now able to move more items quicker and to more areas world-wide. The problem with the
company is the recent hurricanes are causing a bit of concern. An article on Yahoo! Finance
reported, “The Overland Park, Kansas-based company said the devastation caused by Katrina
accounted for about 5 cents a share of the reduced forecast.”

Growth Est.            YELL           Industry
Current Qtr.           3.6%           18.9%
Next Qtr.              8.1%           11.3%
This Year              28.7%          21.8%
Next Year              16.6%          12.6%

The chart above compares Yellow Corp. to the industry. It shows the effects of the hurricane by
displaying a much lower growth estimate then expected. The estimate this year has much higher
growth expected then what actually took place. This could be a result of the high gasoline prices
that have affected the entire transportation industry.

                            Current Qtr       Next Qtr          Current Year      Next Year
Earnings Est.
                            Sep-05            Dec-05            Dec-05            Dec-06
Avg. Estimate               1.43              1.34              5.11              5.96
No. of Analysts             7                 7                 7                 7
Low Estimate                1.42              1.25              4.99              5.75
High Estimate               1.45              1.42              5.19              6.50
Year Ago EPS                1.38              1.24              3.97              5.11
Yahoo.finance.com




                                                                                                    4
This chart shows the how analyses realize the affect of the hurricane. Analyses predict a lower
earnings estimate now, but not in the future. Also, this shows how the merger between Yellow
Corp. and Roadway Express has impacted and caused a positive outlook on the company.

Impact of Economic environment

A recent article in Investor’s Business Daily cited the two most popular industry constraints
affecting the trucking business were, “rising fuel prices and the industry's shortage of qualified,
experienced drivers.” Trucking firms across the U.S. say driver shortages are worsening as the
economy improves and demand for freight capacity grows.

Obviously, rising prices in gas affect a large trucking company. Yet, the industry has adjusted
by adding fuel surcharges to the cost of the shipment. This extra cost is accepted in the industry
and keeps fuel volatility costs at a minimum.

To provide adequate funding through seasonal business cycles and minimize overall borrowing
costs, Yellow Roadway utilizes both fixed rate and variable rate financial instruments with
varying maturities. At December 31, 2004, as no amounts were outstanding under our asset-
based securitization agreement or revolving line of credit, all of our debt was at fixed rates.
 Yellow Roadway’s 2004 Annual Report

Competition

Transportation companies, hauling freight on trucks, trains, ships, and planes, are using state-of-
the-art telecommunications -- from satellites to radio tags -- to track cargo and ensure fast and
secure delivery of shipments. But in addition to high-tech improvements, a simple metal box has
been pivotal in unifying the world of cargo shipping.

That box, the ubiquitous shipping container, is lifted, loaded, and hauled by companies
worldwide that use common handling procedures and equipment. Containers allow for inter-
modal shipments of cargo, because the same unit can be stacked on railcars, put on chassis and
towed by trucks, or placed in ships' holds. The 1966 agreement on the standard shape and size of
containers, brokered by the Geneva-based International Organization for Standardization (ISO),
is one of the many ISO-arranged international agreements that have led to more efficient freight
transport.




                                                                                                      5
Leaders in Market Capitalization

UNITED PARCEL SVC [UPS]                                                                    $83.5 B
TPG N.V. ADS [TP]                                                                          $12.7 B
JB HUNT TRANS [JBHT]                                                                        $3.3 B
YELLOW ROADWAY [YELL]                                                                       $3.1 B
CNF INC [CNF]                                                                               $2.4 B
LANDSTAR SYSTEM [LSTR]                                                                      $2.0 B
SWIFT TRANS CO [SWFT]                                                                       $1.8 B
WERNER ENTERPRISE [WERN]                                                                    $1.5 B
HEARTLAND EXPRESS [HTLD]                                                                    $1.5 B
KNIGHT TRANS INC [KNX]                                                                      $1.4 B

Yahoo.finance.com

This chart can be misleading. These are the leaders in the industry but Yellow does not try to
compete with companies who will ship anything; they only compete for customers who focus on
less-then load (LTL) shipping. Their main competitors are CNF Inc. and JB Hunt Trans. This
industry has a lot of competition and I personally don’t see any new ones coming into the
market, especially since most of the companies are venturing together to form an even larger
distribution capability.

Yellow Roadway Corporation ("YRC,") (Nasdaq: YELL - News) and Shanghai Jin Jiang
International Industrial Investment Co., Ltd. ("Jin Jiang Investment") finalized the formation of a
China-based transportation joint venture on September 1, 2005. Under the terms of the joint
venture, both YRC and Jin Jiang Investment own 50% of JHJ International Transportation Co.,
Ltd. ("JHJ"), the freight forwarding subsidiary of Jin Jiang Investment. This article from
yahoo.finance.com explains that Yellow is looking the build into the foreign market, but they do
not have any foreign competitors in the U.S.

V. Company Position

Market Information

The basics of the marketing for Yellow Roadway are described here. “We operate in a highly
competitive environment, yet one where we believe the right value proposition for our customers
permits us to recover our cost of capital over the business cycle. Historically, our customers
viewed us solely as a less-than truckload (“LTL”) carrier with limited service opportunities. Over
the last several years significant changes have occurred in our environment, including:
consolidation and liquidation of LTL carriers; the increased presence of global, small package
providers such as FedEx Corporation and United Parcel Service, Inc.; and increasing needs and
demands of our stakeholders. We continue to proactively address these changes through our
focused strategy of being a global transportation services provider.”




                                                                                                  6
“In 2003, we continued to implement our strategy, as we negotiated a five-year labor agreement
with the International Brotherhood of Teamsters, completed another non-asset-based acquisition,
and acquired Roadway Express. In 2004, we were especially focused on the synergy
opportunities that the Roadway acquisition presented, which effectively doubled our revenue,
and meeting the demands of our customers during this strong economic period. From a services
perspective, we targeted our premium services revenue lines and will continue this focus in 2005,
including the introduction of a next-day offering to Yellow Transportation’s suite of services.”

“Yellow Transportation offers a full range of services for the movement of industrial,
commercial, and retail goods and provides transportation services by moving shipments through
its regional, national and international networks of terminals, utilizing primarily ground
transportation equipment that we own or lease. The Yellow Transportation mission is to be the
leading provider of guaranteed, time-definite, defect-free, hassle-free transportation services for
business customers worldwide. Yellow Transportation addresses the increasingly complex
transportation needs of its customers through service offerings such as:

• Exact Express - a premium expedited and time-definite ground service with an industry-leading
100% satisfaction guarantee;

• Definite Delivery - a guaranteed on-time service with constant shipment monitoring and
proactive notification;
• Standard Ground - a ground service with complete coverage of North America;

• Standard Ground Regional Advantage - a high-speed service for shipments moving between
500 and 1,500 miles

• MyYellow.com - a leading edge e-commerce web site offering secure and customized online
resources to manage transportation activity.”
2004 Annual Report
Product Development

Yellow Roadway seems to develop products/services through acquisitions and mergers. Each
time they add a new subsidiary or partner to their corporation, they add a new option to their
product line. For example, Yellow bought a large shipping company in China to expand their
shipping possibilities globally. Also, they claim that China is a fast growing economy which
will help grow their business and create new services for the customer.

Demographics

Yellow Roadway serves more than 400,000 manufacturing, wholesale, retail and government
customers throughout North America. They are anyone who needs a package sent.




                                                                                                      7
Pricing and Price Stability

Yellow Roadway usually values price on a per hundred weight basis, along with cost of driver
and gas surcharge.
Yellow Roadway’s business is subject to a number of general economic factors that may have an
adverse effect on the results of our operations, many of which are largely out of their control.
These include recessionary economic cycles and downturns in customers’ business cycles,
particularly in market segments and industries, such as retail and manufacturing, where they
have a significant concentration of customers. Economic conditions may adversely affect our
customers’ business levels, the amount of transportation services they need and their ability to
pay for our services. We operate in a highly price-sensitive and competitive industry, making
pricing, customer service, effective asset utilization and cost control major competitive factors.
2004 Annual Report

Threat of Substitution

The threat of substitution is very small. Yellow Roadway is a very large company that controls a
large part of the market. I got this from their 2004 Annual Report. “Customers have a wide
range of choices. We believe that service quality, performance, technology, service variety,
responsiveness, and flexibility are important competitive differentiators.

Few U.S.-based LTL competitors offer comparably broad service capabilities. By integrating
traditional ground, expedited, air cargo, and managed transportation solutions, we can provide
consumers with a single source answer to shipping challenges with a foundation of service
excellence and quality as its basis. Our market studies show a continued preference among
customers for transportation providers based on quality and value, and we focus on these
attributes. By increasing the depth of the services we offer, we also believe that we can compete
against the largest transportation competitors from a value perspective.”
 2004 Annual Report

Image
With today’s much broader
With today’s much broader portfolio of brands, Yellow Roadway can do more things for more
people. The synergies they have already realized – and continue to pursue – enable them to do
everything with greater efficiency. They continue to look for acquisitions that complement their
strategy, contribute to their financial performance, and help them tap opportunities for
employees, customers and investors.

Management

Yellow Roadway’s management has been very successful since the addition of Roadway
Corporation. They have had record highs in stock price and returns on investments. They have
set out this year to have an even bigger year, but due the rising fuel prices and the volatility of
that market, investors have really questioned whether the firm can be successful.




                                                                                                      8
Management has decided to buy back 50 million dollars in stock as of September 16th, with no
official date set when the buy back will be completed. This will dramatically change the
earnings per share and the price of the stock.

The company has also named a new senior vice president and chief information officer in
Michael Rapken. He came over from Sprint/ Nextel and was the vice-president-applications
development.

VI. Financial Statement Analysis

Accounting Procedures

      Inventory Valuation- Yellow Roadway’s inventory was valued at 20.1 million, 16.4
       million, and 11 million dollars in 2004, 2003, and 2002 respectively.

      Depreciation- Yellow performs annual internal studies to confirm the appropriateness of
       depreciable lives for each category of property and equipment. These studies utilize
       models, which take into account actual usage, physical wear and tear, and replacement
       history to calculate remaining life of our asset base. We also make assumptions regarding
       future conditions in determining potential salvage values. These assumptions impact the
       amount of depreciation expense recognized in the period and any gain or loss once the
       asset is disposed. Depreciation for 2004 was 171 million dollars.

      Pension Plans- With the exception of Meridian IQ, New Penn and Reimer, Yellow
       Roadway and its operating subsidiaries sponsor qualified and nonqualified defined
       benefit pension plans for most employees not covered by collective bargaining
       agreements. Yellow Transportation, Roadway Express and New Penn each have
       collective bargaining agreements with their unions that
       stipulate the amount of contributions each company must make to union-sponsored,
       multi-employer pension plans

      Intangibles- Indefinite life intangibles are reviewed at least annually for impairment, or
       more frequently if indicators of impairment exist. Indefinite life intangibles are tested by
       comparing book value to estimated fair value


Free Cash Flow                                                      645.57 M




                                                                                                  9
Financial Ratios

Trend Analysis (Yellow Roadway vs. S&P 500)




Over the last year Yellow has beaten and lost to the S&P 500. As of recently, Yellow has
underperformed compared to the S&P 500.

Yellow Roadway vs. S&P 500 (last 6 months)




I wanted to point out that most of the losses have happened over the last 6 months. I am not
really sure if this is good or bad considering the S& P is having normal returns at 4-7%.



                                                                                               10
Yellow Roadway vs. S&P 500 and Industry




This chart shows that Yellow has followed the industry and the S&P 500 in the last five days.

Direct Comparison to Industry and Competitors
                                   YELL       ABFS             CNF          Pvt1        Industry
Market Cap:                             2.41B     850.81M         2.70B        N/A       223.77M
                                                                                    1
Employees:                             50,000       12,174       20,100    16,000          2.74K
Qtrly Rev Growth (yoy):               24.80%         7.60%      11.80%         N/A        14.80%
                                                                                   1
Revenue (ttm):                          7.31B        1.79B        3.92B     2.21B        492.07M
Gross Margin (ttm):                     9.02%      14.61%       20.94%         N/A        19.49%
EBITDA (ttm):                        644.84M      196.22M      450.75M         N/A        66.88M
Oper Margins (ttm):                     6.18%        7.74%       8.52%         N/A         5.72%
Net Income (ttm):                    245.25M       85.64M      185.97M         N/A        11.19M
EPS (ttm):                              4.726        3.311       -1.642        N/A           0.89
P/E (ttm):                                8.79       10.11          N/A        N/A          17.58
PEG (5 yr expected):                      0.51         0.78         0.84       N/A           0.95
P/S (ttm):                                0.33         0.47         0.69       N/A           0.52

ABFS = Arkansas Best Corp.
CNF = CNF Inc.
Pvt1 = Con-Way Transportation Services, Inc. (subsidiary or division)
Industry = Trucking




                                                                                                11
Yellow Roadway has the largest market capitalization and revenue compared to the competitors
listed in the chart above. Their quarterly growth revenue is both higher than all of the
competitors and the industry and this will lead to an increase in cash flow. The excess cash flow
will quickly go towards buying back more stock, a project that was issued last month. Yet
another issue is the company’s gross and operating margin is lower the all of the competitors. I
would assume this is caused by poor planning and added unexpected expenses.


VII. Financial Forecast (from analysts)

Revenue Forecast (from finance.yahoo.com)

Earnings Estimate (Next quarter Dec. 2005)                          $1.34
Revenue Estimate (next quarter Dec. 2005)                           $ 2.41B
Growth Estimate (Current)                                           3.6%

EPS Trends

                            Current Qtr      Next Qtr          Current Year      Next Year
EPS Trends
                            Sep-05           Dec-05            Dec-05            Dec-06
Current Estimate            1.43             1.34              5.11              5.96
7 Days Ago                  1.43             1.34              5.11              5.96
30 Days Ago                 1.63             1.46              5.44              6.28
60 Days Ago                 1.65             1.46              5.46              6.27
90 Days Ago                 1.64             1.48              5.45              6.31
Source: finance.yahoo.com

When looking at the latest earnings per share, the number has gone down from the last 90 days.
This could be the reason the stock price has fallen so much over the last few months. The market
is very aware of the EPS and many analysts pay very close attention to it. Even the estimates for
the next quarter have adjusted to the recent changes. Since there has been a recent
announcement of stock buyback, the market would assume that EPS would increase but that is
not the case here. Yellow is on record saying that their stock is undervalued and that is the
reason for the stock buyback.




                                                                                               12
Growth Est                  YELL
Current Qtr.                3.6%
Next Qtr.                   8.1%
This Year                   28.7%
Next Year                   16.6%
Past 5 Years (per annum)    22.6%
Next 5 Years (per annum)    16.0%
Source: finance.yahoo.com

The company has a positive quarterly growth, and this maybe the reason for the stock buyback
and the positive outlook for the company. This is also why the company feels the stock is
undervalued.

VIII. Analysis of Risk

Yellow Roadway Inc. is traded on the NASDQ as a ticker symbol of “yell”. Many indexes
include Yellow in the portfolio such as Dow Jones Composite, S&P 1000, the S&P Composite
1500, NASDQ Composite, and the NASDQ Transportation index.
During the last three months the average shares traded daily was 1,367,840. During the last year
Yellow’s stock price low was $38.81 and reached a high of $64.47. The standard deviation or
relative risk was measured at 7.963 with a correlation of
The Beta of the market/industry is .6 in the last 60 months and 1.11 in the last 30 months.
(www.advfn.com)

Total Risk




       c. 52-week price range $38.81 - $64.47
       d. Standard Deviation- 7.963



                                                                                               13
IX. Fundamental Valuation

The required rate of return was estimated over a series of the last nine years. We assume that
what has happened in the past is reasonable to assume that it will happen in the future. The S&P
500 is used as the market comparison. Also, I used historical rates on the 1-year T-bill as an
estimation of the risk free rate of interest. For the periods of 1995 to 2004 the historical equity
premium of the market was 6.38%. This is a geometric mean average rate of return. I used the
Capital Asset Pricing Model to calculate the required rate of return:

Re = Rf + Beta(Equity Risk Premium)

Re = 4.3 + (1.11) (6.38) = 11.38%

An accurate dividend yield was not determined because Yellow has paid only one dividend in
2002 of $3.98 in the last six years.
(www.adfvn.com)

Valuation

Yellow Roadway

EPS * (1+Growth) = Forecasted EPS
4.725 * (1+ .06606) = 5.037
 P/E * 5.037 = Estimated Price
8.86 * 5.037 = $44.63

Competitors (P/E)

4.725 * (1 + .06606) = 5.037
10.24 * 5.037 = $51.57

Financial Summary (as of Oct. 8, 2005)

 General Information
 Stock Price                                     $41.50
 Market Capitilization                      236,100,000
 Beta                                             1.110
 EPS                                              3.750
 DPS                                              0.000
 P/E                                             8.60%
 Dividend Yield                                  0.00%
 Dividend Payout Ratio                           0.00%
 Required Rate of
 Return                                          11.38%
 ROE                                             13.60%
 Forecasted Growth
 Rate                                            12.84%




                                                                                                 14
 PE Ratios
 5 Yr. High P/E Ratio                           0
 5 Yr. Low P/E Ratio                            0
 5 Yr. Avg. P/E Ratio                           0
 P/E Ratio: 1 month Ago                       9.9

 Growth Rates     5 yr.     R Sq. of 5 yr. Growth Rate
 Revenue            12.84                     36.6
 Income                 0                        0
 Dividend               0                        0

 Forecasted Growth Rate
 g=(1-p) * ROE
          6.6606

Source: advfn.com

Growth Est                  YELL              Industry
Current Qtr.                3.6%              10.7%
Next Qtr.                   8.1%              14.5%
This Year                   28.7%             21.7%
Next Year                   16.6%             12.7%


When looking at the forecasted growth rate and compare it to Yellow’s estimates and the
industry, they both seem a little high. This current low growth rate concerns me because I do not
see any reason why the grow with more than double in the next quarter.

X. Other Considerations

    a. other analyst opinions
RECOMMENDATION SUMMARY*

Mean Recommendation (this week):                                              2.6
Mean Recommendation (last week):                                              2.6
Change:                                                                       0.0
* (Strong Buy) 1.0 – 5.0 (Strong Sell)




                                                                                              15
UPGRADES & DOWNGRADES HISTORY

Date         Research Firm              Action         From                 To
17-Aug-05 CSFB                          Initiated                           Neutral
13-Jul-05 Raymond James                 Initiated                           Mkt Perform
16-Jun-05 BB&T Capital Mkts             Initiated                           Buy
28-Mar-05 JP Morgan                     Upgrade        Underweight          Neutral
28-Jan-05 Deutsche Securities           Upgrade        Hold                 Buy
16-Dec-04 Deutsche Securities           Initiated                           Hold
8-Nov-04 Bear Stearns                   Downgrade      Outperform           Peer Perform
23-Jul-04 Stephens Inc                  Upgrade        Underweight          Equal-weight
12-Jul-04 Avondale Partners             Upgrade        Mkt Perform          Mkt Outperform
 30-Jan-04 JP Morgan                    Downgrade      Neutral              Underweight
Source: finance.yahoo.com

         b. On September 14, 2005, Yellow Roadway Corporation announced the buyback of 50
            million shares. The company felt the stock undervalued and there is no expiration
            date for the project.

Top Intuitional Holders
Holder                                 Shares       % Out     Value*                  Reported
WELLINGTON MANAGEMENT
                                       4,655,373    8.04      $272,525,535            31-Mar-05
COMPANY, LLP
GLENVIEW CAPITAL MANAGEMENT,
                                       3,218,007    5.56      $188,382,129            31-Mar-05
INC.
FMR CORPORATION (FIDELITY
                                       3,173,837    5.48      $185,796,417            31-Mar-05
MANAGEMENT & RESEARCH CORP)
WACHOVIA CORP NEW                      3,072,477    5.31      $179,862,803            31-Mar-05
FRIESS ASSOCIATES INC                  2,418,500    4.18      $141,578,990            31-Mar-05
STATE STREET CORPORATION               2,325,511    4.02      $136,135,413            31-Mar-05
BARCLAYS BANK PLC                      2,274,180    3.93      $133,130,497            31-Mar-05
JGD MANAGEMENT CORPORATION             1,489,279    2.57      $87,182,392             31-Mar-05
CITIGROUP INC.                         1,179,808    2.04      $69,065,960             31-Mar-05
S.A.C. CAPITAL ADVISORS, LLC           1,141,552    1.97      $66,826,454             31-Mar-05




                                                                                                  16
Top Mutual Fund Holders
Holder                                  Shares          % Out      Value*            Reported
FIDELITY CONTRAFUND INC                 1,151,940       1.99       $67,434,567       31-Mar-05
BRANDYWINE FUND, INC.                   1,052,400       1.82       $61,607,496       31-Mar-05
FIDELITY LOW-PRICED STOCK FUND 758,021                  1.31       $37,143,029       30-Apr-05
AMERICAN CENTURY VISTA                  727,000         1.26       $42,558,580       31-Mar-05
ISHARES S&P SMALLCAP 600 INDEX
                                        459,949         .79        $25,623,758       31-Dec-04
FD
VANGUARD EXPLORER FUND, INC.            451,600         .78        $25,569,592       31-Jan-05
GOLDMAN SACHS MID-CAP VALUE
                                        376,810         .65        $19,914,408       30-Nov-04
FUND
ALGER MIDCAP GROWTH
                                        363,850         .63        $20,601,187       31-Jan-05
INSTITUTIONAL PORTFOLIO
ISHARES S&P SMALLCAP 600/BARRA
                               350,792                  .61        $19,542,622       31-Dec-04
VALUE INDEX FD
HENNESSY CORNERSTONE
                                        339,100         .59        $17,226,280       30-Jun-05
GROWTH FUND


Benjamin Graham criteria

1. an earnings to price yield to least twice the AAA bond yield
AAA bond yield- 5yr: 4.08
Earnings to price yield : 11.38
                        Passes Criteria: 11.38 > 8.16

2. Price-earnings ratio less than 40 percent of the highest price-earnings ratio the stock had over
the past five years (P/E: 8.79 5yr P/E high: 27.7)
                        Passes Criteria: 11.08 > 8.79

3. dividend yield cannot be tested

4. stock price below two-thirds of tangible book value per share
        Price: 41.55, Tangible Book-Value per share: 34.133
                Fails to Pass Criteria: P > 2/3BV

5. stock price two-thirds “net current asset value”
                Unable to test-

6. Total debt less than book value
        (Total Debt: 657,935,000 < Total Book Value: 1,422,718,000)
                Passes Criteria

7. Current Ratio greater than two
       Current Assets / Current Liabilities
       1,053,441,000 / 1,199,739,000 = .88            Fails Test


                                                                                                  17
8. Total debt less than twice “net current asset value”
                Unable to test

9. Earning growth of prior ten years at least 7% on an annual basis

Growth


                                       1995 1996 1997          1998    1999    2000     2001      2002    2003     2004    late
Revenue Growth

Year over Year                          6.6%   0.5%   9.0%   (13.4%)   11.3%   11.2%   (8.7%)   (19.9%)   16.9%   120.5%
                       Fail Test – Negative earnings in 1998, 2001, and 2002



10. Stability of growth of earnings in that no more than two declines of 5% or more in the prior
10 years
                       Fails Test- in many years above

XI. Conclusions

After evaluating all the information from above, many positive examples stand out for Yellow
Roadway. One is the dynamic growth from 2004. This company has shown, with good
economical conditions, that they can achieve astronomical amounts of return. Anyone who
would have invested in Yellow during 2003 and sold in early 2005 would make at least a 30%
return. That is almost three times what the S&P 500 did during that time span.

This company also shows that it is looking towards the future with the new joint venture with the
China-based transportation company. Yellow shows its ability to plan for the new global
economy and will be one step ahead of its competitors in that department.
This company has excess cash which it has used wisely towards a great investment.

On the topic of excess cash, Yellow has decided to spend 50 million dollars to buy back stock.
This could be a good way to get rid of some excess cash and keep the company from paying
dividends for the third consecutive year. Although, it could be Yellow Roadway assuming that
the stock will rebound from this announcement. I will keep the class updated, but there is
nothing to get excited about yet.

The industry has accepted fuel surcharges as a means to cope with rising fuel prices. This should
continue to protect this company and the trucking industry from collapse. In my opinion, the
company cannot be losing too much money on fuel because they are spending a lot during these
buybacks and mergers.

One of the other problems for Yellow is keeping their stock price high. When we bought the
stock it was near $60, and currently they fall around the $42 range. The company’s EPS beats
the industry and the market. This will continue to climb once the company buys all of its
intended shares, but the P/E ratio is much lower than the market and the industry.


                                                                                                          18
This is very important because many investors pay close attention to it. With lower numbers in
this area, Yellow could be losing potential investors to their competitors.

Another problem is Hurricane Katrina. Yellow assumes that the halt in shipping to those areas is
costing them dollars that will be difficult to make up. This hurricane affected gas prices also,
which Yellow claims is causing much of the problem with the stock prices. The industry has a
heavy correlation with gas and oil prices.

My personal opinion is that higher gas prices should be handled by the gas surcharge, therefore
this hurricane should really not affect the price of stock. I feel that the average investor or any
professional advising a client would tell them to stay away from any industry that relies on gas.

Estimated growth is also a problem. Many analysts have estimated growth to be small for this
industry. I would assume this is from the rising fuel prices. Yellow has taken a significant hit in
stock price in the last year and that will also change analysts’ opinion on growth with the
company and the industry.


Recommendation

After looking at these different situations, I suggest we sell this stock before it drops any further.
We have lost money on it, but I feel there are better places in the market for our money. By
holding the stock, it will take much longer for our portfolio to regain this loss. This industry is a
little cyclical and when down, it always seems to come up again, but in this case I feel that the
stock will never rebound to as high of a price as shown in the past. These strides towards
improvement, meaning the buy back and the joint venture, typically do not take place this close
together and they have shown very little results affecting the price of Yellow Roadway’s stock.




Resources:     finance.yahoo.com
               Morningstar.com
               Advfn.com
               2004 Yellow Roadway Annual Reprot




                                                                                                    19
Appendix:

   A. Pro Forma
      Income Statement
      Balance Sheet
      Cash Flow

   B. Financial Snapshot

   C. Required Rate of Return Calculations (this will not be on the website but the calculations
      will be in this report)




                                                                                             20
Pro Forma Financial Statements

Income Statement
                                                          Numbers in the thousands
PERIOD ENDING                             31-Dec-04   31-Dec-03     31-Dec-02
Total Revenue                             6,767,485   3,068,616     2,624,148
Cost of Revenue                           4,924,932   2,439,834     2,103,993

Gross Profit                              1,842,553   628,782       520,155

     Operating Expenses
     Research Development                 -           -             -
     Selling General and Administrative   1,314,031   449,825       385,522
     Non Recurring                        (4,547)     2,957         8,435
     Others                               171,468     87,398        79,334

     Total Operating Expenses             -           -             -



Operating Income or Loss                  361,601     88,602        46,864

     Income from Continuing Operations
     Total Other Income/Expenses Net      (19,984)    (1,182)       (2,067)
     Earnings Before Interest And Taxes   341,617     87,420        44,797
     Interest Expense                     43,954      20,606        7,211
     Income Before Tax                    297,663     66,814        37,586
     Income Tax Expense                   113,336     26,131        13,613
     Minority Interest                    -           -             -

     Net Income From Continuing Ops       184,327     40,683        23,973

     Non-recurring Events
     Discontinued Operations              -           -             (117,875)
     Extraordinary Items                  -           -             -
     Effect Of Accounting Changes         -           -             -
     Other Items                          -           -             -



Net Income                                184,327     40,683        (93,902)
Preferred Stock And Other Adjustments     -           -             -

Net Income Applicable To Common Shares    $184,327    $40,683       ($93,902)




                                                                                21
Balance Sheet
                                                            Numbers in the thousands
PERIOD ENDING                          31-Dec-04   31-Dec-03      31-Dec-02

Assets
Current Assets
     Cash And Cash Equivalents         106,489     75,166          28,714
     Short Term Investments            -           -               -
     Net Receivables                   845,092     722,756         327,913
     Inventory                         20,916      16,452          11,039
     Other Current Assets              80,944      70,062          57,687

Total Current Assets                   1,053,441   884,436         425,353
Long Term Investments                  -           -               -
Property Plant and Equipment           1,422,718   1,403,268       564,976
Goodwill                               632,141     617,313         20,491
Intangible Assets                      468,310     467,114         7,696
Accumulated Amortization               -           -               -
Other Assets                           50,559      91,098          24,469
Deferred Long Term Asset Charges       -           -               -

Total Assets                           3,627,169   3,463,229       1,042,985

Liabilities
Current Liabilities
       Accounts Payable                621,903     270,785         120,279
       Short/Current Long Term Debt    254,400     73,257          74,261
       Other Current Liabilities       323,436     519,155         255,819

Total Current Liabilities              1,199,739   863,197         450,359
Long Term Debt                         403,535     836,082         50,024
Other Liabilities                      489,865     463,609         156,987
Deferred Long Term Liability Charges   319,839     298,256         25,657
Minority Interest                      -           -               -
Negative Goodwill                      -           -               -

Total Liabilities                      2,412,978   2,461,144       683,027

Stockholders' Equity
Misc Stocks Options Warrants           -           -               -
Redeemable Preferred Stock             -           -               -
Preferred Stock                        -           -               -
Common Stock                           51,303      50,146          31,825
Retained Earnings                      550,484     366,157         325,474
Treasury Stock                         (38,462)    (44,223)        (41,302)
Capital Surplus                        694,504     653,739         80,610



                                                                                 22
Other Stockholder Equity                                  (43,638)          (23,734)        (36,649)

Total Stockholder Equity                                  1,214,191         1,002,085       359,958

Net Tangible Assets                                       $113,740          ($82,342)       $331,771

Cash Flow

PERIOD ENDING                                                   31-Dec-04       31-Dec-03     31-Dec-02
Net Income                                                      184,327         40,683        (93,902)

Operating Activities, Cash Flows Provided By or Used In
Depreciation                                                    171,468         87,398        79,334
Adjustments To Net Income                                       31,728          25,600        119,749
Changes In Accounts Receivables                                 (70,230)        (7,430)       (141,133)
Changes In Liabilities                                          65,076          44,483        5,928
Changes In Inventories                                          -               -             -
Changes In Other Operating Activities                           53,349          (34,998)      73,082

Total Cash Flow From Operating Activities                       435,718         155,736       43,058

Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures                                            (201,818)       (103,327)     (110,709)
Investments                                                     -               -             -
Other Cashflows from Investing Activities                       31,560          (509,145)     (14,535)

Total Cash Flows From Investing Activities                      (170,258)       (612,472)     (125,244)

Financing Activities, Cash Flows Provided By or Used In
Dividends Paid                                                  -               -             113,790
Sale Purchase of Stock                                          15,859          1,764         107,496
Net Borrowings                                                  (249,482)       501,424       (129,600)
Other Cash Flows from Financing Activities                      (514)           -             -

Total Cash Flows From Financing Activities                      (234,137)       503,188       91,686
Effect Of Exchange Rate Changes                                 -               -             -

Change In Cash and Cash Equivalents                             $31,323         $46,452       $9,500




                                                                                                          23
                    Financial Snapshot
                    As of 10-8-2005


General Information
Stock Price                                   $41.50
Market Capitilization                    236,100,000
Beta                                           1.110
EPS                                            3.750
DPS                                            0.000
P/E                                           8.60%
Dividend Yield                                0.00%
Dividend Payout Ratio                         0.00%
Required Rate of Return                      11.38%
ROE                                          13.60%
Forecasted Growth Rate                       12.84%




                    One Year Snapshot




PE Ratios
5 Yr. High P/E Ratio                                0
5 Yr. Low P/E Ratio                                 0
5 Yr. Avg. P/E Ratio                                0
P/E Ratio: 1 month Ago                            9.9

Growth Rates        5 yr.      R Sq. of 5 yr. Growth Rate
Revenue                12.84                      36.6
Income                     0                         0
Dividend                   0                         0

Forecasted Growth Rate
g=(1-p) * ROE
            6.6606




                                                            24
Disclaimer: This analysis does not necessarily reflect the beliefs of the University of Missouri-
Columbia or the College of Business. The insights and opinions are of the students of
Investment Funds Management and should not be used in personal investment decisions. The
University of Missouri and the authors of this analysis take no responsibility for the validity of
the valuation and analysis.




                                                                                                     25

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:16
posted:11/9/2011
language:English
pages:25