Shares of workforce accommodation leader Civeo Corp. (NYSE: CVEO) rose as much as 14% Monday before moderating to close up 9.5%, as investors added to the momentum from Friday, when Horizon Kinetics revealed an 11.1% passive stake in the company. The investment firm prides itself on a "long-term, contrarian, fundamental value investment philosophy."
That certainly applies here. Civeo stock has struggled in its brief public life, as a slowdown in oil, natural gas, and coal mining projects in North America and Australia has weighed heavily on the company's top and bottom lines.
Civeo provides lodging and amenities, ranging from laundry services to food catering, to resource extraction companies working in remote areas. Its customers include major coal miners in Australia and tar sands developers in Northern Canada. Those companies don't have to worry about the logistics of housing their employees, who get to enjoy some of the comforts of home.
Unfortunately, this niche accommodation industry has not fared well amid the downturn in commodities prices that began in late 2014. Civeo saw its top line drop 58% from 2014 to 2016, while occupancy rates across its holdings stood at a abysmally low 54% last year. Investors may think that the business will rebound along with rising activity in the oil and gas industry, but improved technology (it takes less time to drill and complete shale wells than ever before) and market forces (China's appetite for Australian coal is decreasing) hint that this service company may find itself on the outside of an upturn looking in.
While it's encouraging to see Horizon Kinetics bet on the long-term future of Civeo stock, there is no shortage of obstacles that need to be overcome before the company can regain its footing. There are growth opportunities to be sure, such as LNG export facilities on Canada's West Coast, but the future doesn't look particularly bright for this niche industry.
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