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  • peristentone peristentone Jul 31, 2011 8:24 PM Flag

    here are the IFs for the stock to triple

    Lucy thanks for posting those numbers. Just to nit pick, I would correct some on these:

    Interest: I would move that to $145M, and that estimate is based on the Q1 2011 report. I would exclude the finance charges for Q1 2011 since those probably include transaction costs for Trader that are one time. However the restated finance charges for Q1 2010 of $36.2M look similar to other quarters pre-divestiture of Trader. Do you take exception to using something like $36.2M as the interest expense per quarter?

    You are also leaving out the $5.1M per quarter they spend on dividends to preferred, which are treated like interest and broken out separate on the income statement. So that brings us another $20.4M and total around $165.4M for interest.

    Capex: Look at the full Q1 2011 report on page 12, and to Yellow's credit they completely breakout maintenance and growth capex. It looks like they are increasing their spend on growth capex, and based on the Q1 2011 number of around $14.2M that would suggest an annual number for capex around $57M.

    Roney's EBITDA number is pure fiction, and based on the Q1 2011 EBITDA number of $190M (which already takes out the Trader EBITDA), I think we could use $760M per year. Your $800M looks close to truth.

    At these stock prices, let's expect that Yellow buys back 100M shares in the next year. They were willing to spend 50M * $4/share at time of the Q1 2011 webcast, so that funds about 100M shares at the now much depressed share price. So even if they do not cut the dividend with buyback I project forward a dividend of 65 cents against 400M shares, or $260M.

    So adjusting for those numbers:

    EBITDA: $760M
    Interest: $165.4M
    Capex: $57M
    Dividends-Post-Buyback: $260M

    That leaves $277.6M to pay down debt, or to do even higher levels of share buybacks.

    Note this analysis neglects to take into account the substantial amounts of debt they will buy back with the $708M from the Trader sale, which further impacts interest payments.

    I am going to read the Credit Suisse research later today. But I don't see the argument for any kind of financial panic or liquidity problem here. The business has plenty of uncertainty going forward, but it doesn't appear to be anywhere close to a collapse.

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    • I guess we have to take out around $60M for taxes, so that leaves us with around $217.7M to pay down debt.

      If they are left with 400M shares after a buying 100M shares over next year, and if they cut dividend to 40 cents, that saves another $100M.

      So there appears to be financial flexibility here to make available $300M per year for buying back debt, if they so choose.