Yellow Corporation (NAS:YELL) — mrkt cap $51mm; Price $.99; trailing P/E NA
SPECULATIVE POSITION INITIATED. We believe this company has a ~50% chance of going bankrupt. It may come as a surprise, then, that as part of our tactical trade bucket, we have allocated 1% of our portfolio to the name (the market cap is tiny, but the name is liquid and EV is approximately $1.5B). If it manages to escape bankruptcy, we believe the upside could be greater than 2-3x. We wrote about Yellow a few months ago (below). The company has recently been granted short-term leniency from lenders and is in the middle of a protracted fight against the Teamsters union, of which they employ 22,000 members. Yellow is fighting for concessions from Teamsters to streamline its operations, and Teamsters have repeatedly balked (Teamsters head Sean O’Brien tweeted a picture of a tombstone with the Yellow logo). As a tactic to get Teamsters to the table, Yellow has just announced that it is withholding $50 million from Teamsters’ benefits and pensions. The Teamsters have threatened to strike, but if a strike is carried out, they will not have a company to go back to. Our guess is that the Teamsters will grant concessions to Yellow in the final hour, enabling the carrier to survive.
Aspen Aerogel (NYSE:ASPN) — mrkt cap $580mm; Price $8.26; trailing P/E NA
PASS. ASPN manufactures aerogel which is one of the world’s best insulators as it is 97% air by volume. Although these insulators are typically used for harsh industrial environments such as oil pipelines or outer space, a more common use has been found for them in electric car batteries. Using aerogel as a thermal barrier in car batteries helps reduce the chances of electrical fires. ASPN is rapidly expanding supply to meet future demand with projected capex being more than 3x what it was last year. However domestic competitors are expanding supply along with overseas Chinese competition. This will not bode well for future margins and given current margins are around 10%, ASPN will not be profitable anytime soon.
Petco (NAS:WOOF) — mrkt cap $2.2B; Price $8.29; trailing P/E NA
MORE RESEARCH NEEDED. Petco is reinventing itself by bundling add-on services and creating loyalty and tiered membership awards for its customers. The days of selling non-exclusive and durable items are gone. These ancillary services include veterinary, pet insurance, grooming, and vaccinations. These provide a one stop shop experience for customers and their pets. WOOF has already achieved about $1B in recurring revenues from these membership programs. Given that WOOF has durable competitive advantages in its sizeable retail footprint, what needs to be determined are the unit economics of these add on services. The humanization of pets is one of the strongest trends that we believe will continue to persist and grow stronger; WOOF could be a winning bet on this trend.