Stock Sonar #37 - 12/27/2023

Yellow Corporation (YELLQ) — mrkt cap $271mm; Price $5.2; EV/EBITDA NA

TRIM. This speculative trade is up 100% since we wrote about Yellow Corporation on our 12/6/23 Stock Sonar. We are trimming our position by half to keep the weighting under 1% of our portfolio. Aside from the price move that has reduced upside potential, our take on the situation is roughly unchanged since our 12/6 SS: “This position will represent less than 1% of our portfolio due to certain unanalyzable aspects of the bankruptcy sale proceedings… What we can analyze are the assets on the balance sheet. Auctions on the sale of their terminals were released before close yesterday and came in significantly higher than expected: ~400mm above the 1.5B stalking horse bid (and this wasn’t even for a full sale of the terminals). Our estimate of fair value for shareholder recovery is north of 600mm…The risk is that our estimates do not account for very large potential off-balance sheet liabilities (Worker adjustments/retraining along with multi-employer pension plan). We think the chance is decent these potential off-balance sheet liabilities are treated in Yellow’s favor and have sized our position accordingly (in the event this doesn’t favor Yellow this will be a full loss)”.

Gildan Activewear (NYSE:GIL) — mrkt cap $5.7B; Price $33.0; EV/EBITDA 9.8

MORE RESEARCH NEEDED. Gildan is the largest manufacturer of low-cost basic apparel for the Printwear industry. We completed a full analysis of Gildan on 4/1 (here) and while the company did have promising “moaty” attributes, we found the CEO/founder Glenn Chamady to be overly promotional and rarely did he directly address the firm’s many missteps. We assigned the company a neutral rating and patiently observed potential developments that might warrant a re-rating. As things would have it, earlier this month the CEO was ousted by the board for emergent reasons. The stock reacted negatively on the news (-12%) and to our surprise large shareholders/funds have decided to take an active role in reinstatement (WSJ article: here). We think these funds likely have a relationship with the CEO that is blurring their vision (or just plain attention seeking – active campaigns look good to their investors). Gildan is a better company without the CEO (former) and we are hopeful added volatility creates potential for entry.

Nextdoor (NAS:KIND) — mrkt cap $737mm; Price $1.92; EV/EBITDA NA

PASS. KIND is a localized app for neighborhoods. Neighbors can share information about local news, safety, garage sales, lost pets etc. The benefits of a hyperlocal marketplace is that it is more valuable to local businesses with ad dollars to spend. Unfortunately, KIND has been unable to execute, losing roughly $35mm a quarter on $60mm of revenue along with ongoing deterioration of metrics such as number of users. With 40mm weekly active users and with a net cash balance of $500mm, the market is valuing each user at ~$5, which is low by most marketplace standards. KIND would be a great acquisition target of firms like GOOG however, with majority voting rights being controlled by select few directors, it is uncertain whether this value will be realized.

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