Shares of trucker YRC Worldwide (NASDAQ: YRCW) leapt more than 11% in early trading Wednesday and are still up a respectable 9.7% as of 11:45 a.m. EDT. You can thank Deutsche Bank for that.
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This morning, the German banker announced that it met with YRC management and came away impressed with the new CEO's turnaround plan. It believes YRC will improve "pricing," "yield" -- and share price -- this year.
Deutsche upgraded shares of YRC Worldwide to buy, based on its belief the company is back on the right track to recovery. With a $13 target price on the shares, Deutsche's new rating implies that new buyers of YRC stock today could enjoy as much as a 30% profit one year from now.
That alone explains why investors are rushing to buy the stock today -- and with 20% more profits in store, why they might continue buying YRC stock in the days to come (assuming Deutsche is right).
Is Deutsche right? YRC Worldwide's trailing-12-month profits are negative, the company lost money in two of its past four quarters, and burned cash in three of those quarters. The company remains heavily in debt, with $734 million more debt than cash on its balance sheet, and it's been driving on the brink of bankruptcy for years.
Still, recent developments have shown YRC enjoying slightly stronger sales and an improvement in free cash flow in its two most recent quarters. The stock remains a gamble, but the more improvements it makes, the safer the bet will get.
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