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Will Civeo Corp (CVEO) Recover after Einhorn Goes Activist and Boosts His Stake?

David Einhorn‘s Greenlight Capital is bullish on Civeo Corp (NYSE:CVEO) and has recently upped its position in the company. According to a new filing with the US Securities and Exchange Commission, Greenlight Capital currently owns close to 10.66 million shares of Civeo, which represent an increase from around 6.15 million shares the investor revealed in its latest 13F filing. Moreover, the fund changed the nature of its stake to activist and currently holds almost 10% of the company’s common stock.

Greenlight Capital

Mr. Einhorn profited from the drop of the stock price of the company from September 29, following which the stock declined to around $12 per share from $25. The drop came after Civeo Corp (NYSE:CVEO) announced that it plans to continue its operation as a corporation and redomicile to Canada. However, Mr. Einhorn has proposed several other measures to increase the shareholder value of the company such as taking more leverage and make its capital structure more appropriate for a real estate company. Moreover, the investor urged the board to replace the CEO, Bradley Dodson.

Civeo Corp (NYSE:CVEO) was spun-off from Oil States International earlier in June and each shareholder of Oil States received two shares of Civeo for each share of Oil States they held. Greenlight Capital also owns a significant chunk of Oil States, which contains 2.75 million shares as of the end of June. Aside from Mr. Einhorn, other investors that are among the shareholders of Civeo include Barry Rosenstein‘s JANA Partners with around 12.41 million shares and David E. Shaw‘s D. E. Shaw, which owns approximately 2.38 million shares.

Moreover, as we have recently reported, some insiders also decided the take advantage of Civeo Corp (NYSE:CVEO)’s stock plummeting and have raised their holdings. One of them is the aforementioned CEO of the company, Bradley Dodson who bought 24,000 shares, raising his stake to 322,519 shares. In addition, two directors, Mayank Ashar and Gary L Rosenthal acquired each 8,000 shares.

Despite the stock’s decline, with Greenhorn and insiders raising their stakes in the company, we can pressume that the market overreacted on the news. Even though the company has also lowered its guidance for the current year, expecting revenues between $900 million and $920 million and an adjusted EBITDA margin of 34%-35%. For the next year the revenues are also expected to be lower. However, taking into account the tax advantages and the recent Einhorn’s activist move, the company’s financial problems might be short-term. The market already seems to back Mr. Einhorn’s ‘bulishness’ sending the stock of Civeo Corp (NYSE:CVEO) up.

And there is a reason why the stock of Civeo Corp (NYSE:CVEO) is up on the back on Greenlight increasing its stake. Being a value oriented hedge fund, Greenlight seeks investments that are underpriced for some reasons and then tries to unlock the value of that company. In fact, Mr. Einhorn said himself during an interview from several years ago that Greenlight is focusing on situations when an investment is mispriced or misunderstood and investors don’t understand what’s going on. Then, the fund tries to sort everything out and prove that it in fact is a traditional investment. This strategy proved to be effective for years, Greenlight returning on average around 19% since its inception.

Disclosure: none