Civeo stock: stocks can still climb (NYSE: CVEO)

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In my opinion, one of the most interesting companies dedicated to providing services to global energy players and mining companies is Civeo Corporation (NYSE: CVEO). Despite a difficult period when energy prices were much lower than they are today, this accommodation business has shown strong signs of recovery. Basically, things are going pretty well for the company. Revenue is up and cash flow is attractive. Some investors may be discouraged by this opportunity due to the surge in share price the company has seen in recent months. However, I would say that the company still offers upside potential as long as its current strength remains. It is for this reason that I maintain my strong buy rating on the company.

Recent performance has been excellent

The last time I wrote about Civeo was in November 2021. At that time, I recognized the company’s historically mixed performance. But at the same time, I ultimately rated his performance as generally positive. In the end, I also said that the stocks were very cheap and offered great upside potential for long-term investors. Since then, my call has gone pretty well. Investors who had bought shares of the company the last time I talked about it would have generated a return of 25.4%. This compares to the 12.2% drop recorded by the S&P 500 over the same period. But that’s not all. Earlier in 2021, in May to be exact, I wrote another post touting the company’s opportunity. I had the same rating for the company then. Since that article was published, stocks have jumped 62.1%. This compares to the 1.7% decline recorded by the S&P 500.

Historical financial data

Author – SEC EDGAR Data

Based on Civeo’s share price performance, you might think that fundamental performance has also been robust. And for the most part, you’d be right. When I last wrote about the company, we only had fundamental data covering the first nine months of its 2021 fiscal year. Fast forward to today, and now we know how 2021 ended. and we also have data covering the first quarter of 2022. For 2021 as a whole, the company’s revenue was $594.5 million. This compares favorably to the $529.7 million generated in 2020. According to other accounts, Civeo also performed well in 2021. Although the company generated a net loss, its amount was only 0, $6 million. That compares to the $136.1 million the company lost a year earlier. Operating cash flow deteriorated year over year from $117.4 million in 2020 to $88.5 million in 2021. If we adjust for changes in working capital, however, the situation only deteriorated slightly, with the metric falling from $97.5 million to $97.3 million. Meanwhile, the company’s EBITDA increased from $99.5 million in 2020 to $109.1 million last year.

Basically, the situation for the company has improved significantly in the short time we have for 2022. In the first quarter of the year, revenue reached an impressive $165.7 million. This represents a 32.1% increase from the $125.4 million generated by the company a year earlier. Management expects this growth to continue for much of the year, with revenue likely to be in the full 2022 range of $660 million to $675 million. At the midpoint, this would imply a year-over-year growth rate of 12.3%.

Historical financial data

Author – SEC EDGAR Data

From a profitability point of view, the situation is also currently improving. In the first three months of the company’s 2022 fiscal year, for example, the company generated a profit of $0.9 million. That compares to the $10 million loss suffered a year earlier. Operating cash flow deteriorated year over year from $12.8 million to just $2 million. If, however, we correct for changes in working capital, it would actually have gone from $12.9 million to $23.7 million. Another metric that also improved over this period was EBITDA. According to management, this came to $16.2 million for the first three months of 2021. This year, the reading was $25.6 million.

For the full year 2022, the picture becomes a little less exciting. For example, the company’s EBITDA is forecast between $95 and $102 million. At the midpoint, that would represent a 9.7% decline from what the business generated in 2021. No guidance was given regarding other profitability metrics. But if we assume that operating cash flow would decline at the same rate that operating cash flow should, then it should be around $87.8 million on an adjusted basis. For those worried about debt, the only thing I can say is that the picture isn’t all that bad. Even if the company does not reduce its net debt by the end of this year, based instead on the numbers we have today, the 2022 results would imply a net leverage ratio of just 1.72. This compares to the 1.55 reading we get if we rely on the 2021 results.

Trading multiples

Author – SEC EDGAR Data

The valuation of the company is quite simple. If we use the 2021 earnings management provided, the business trades at a price to adjusted operating cash flow multiple of just 3.6. This only increases modestly to 4.1 if our estimates for 2022 prove to be accurate. Meanwhile, the company’s EV/EBITDA multiple is expected to be 5.7. That jumps to 6.3 based on 2022 estimates. Last time I wrote about the company, I had forecast results for 2021. At that time, price versus operating cash flow multiple, calculated as 3.9. And the EV/EBITDA multiple was 6.2. So the company’s prices haven’t changed significantly since I last wrote about the company, even though the shares have risen significantly.

Take away

Based on all the data provided today, I can say with confidence that Civeo is an attractive prospect. Basically, the company seems quite robust. Obviously, his fortunes will fluctuate depending on what happens in the energy and mining markets. But from now on, the future looks bright. Even though the fundamentals have deteriorated, stocks appear to be trading at incredibly cheap levels right now, which leads me to further rate the company as a Strong Buy prospect.

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