Why Blue Orca’s Short Report Is Grossly Misleading (NYSE:EVA) | Seeking Alpha

2022-10-22 00:49:41 By : Ms. Jenny Zhu

On October 12, 2022, short activist hedge fund Blue Orca Capital released a report on Enviva Inc (NYSE:EVA ) attacking the company's sustainability claims and practices, and the company's financial health. In our opinion, the report is grossly misleading, as it conveniently excludes factual information and/or makes several stretched claims about the company and its financials. We give the authors credit for their ability to craft a story that is emotional, misleading readers with lots of seemingly in-depth research supporting their claims. In this article, we intend to refute the claims Blue Orca has made.

First, here are their claims. Professional Wood Grinder

Why Blue Orca’s Short Report Is Grossly Misleading (NYSE:EVA) | Seeking Alpha

Below, we review each claim the report has made and provide our opinion around the basis for these claims. For reference, this is not the first time that we have responded to or examined a short report. For example, in August of 2019 we discussed accounting issues after a short report was regarding General Electric (GE) here. For that report we found ourselves agreeing to some extent with the authors, recognizing that there were significant accounting deficits there. GE has been a poor performing stock since then.

Enviva says it does not procure from clear-cut forests, but there is evidence that Enviva does so.

Enviva has never claimed that it does not procure from clear-cut forests. They have and will continue to do so. Neither Enviva's sourcing policy nor anywhere on the company's website is there a claim made that the company does not source from clear-cut forest.

Blue Orca claims that Enviva tells investors that they do not procure wood fiber from clear-cut forests. To accuse the company of lying, the report shows what looks like "sexy" investigative work. The researchers claim to have found hidden GPS coordinates in the meta-data of Enviva's Track and Trace program where they were able to find tracts of clear-cut timberland. According to their report, this proves that Enviva is sourcing from clear-cutting operations and that they are lying about the sustainability of their procurement practices.

Oddly, the Blue Orca report does not cite anything directly from Enviva's policies or ESG reports as it relates to clear-cutting. The researchers seem to infer that Enviva says that it does not take wood from clear-cutting operations. If Enviva was trying to claim something that would be seen as positive by ESG investors, then why would it not be stated anywhere in the company's policies or on their website? In fact, when we spoke with investor relations (IR), the team told us that Enviva has never claimed that they do not take wood from clear-cutting operations.

Not only are the sources Blue Orca cites not from published company policies, but the evidence that Enviva is lying is weak at best. For example, the CBS News article does not have a real quote from the Enviva employee they interviewed saying that the company does not take wood from clear-cutting operations. The article simply states that he said Enviva does not take wood from clear-cutting operations.

Notice all the quoting above in previous paragraphs, but this specific statement was not a quote. We recognize that this is a very tiny detail, but still view it as significant. Not having an actual quote from an Enviva employee about the company's policies as it relates to clear-cutting is weak evidence at best.

In addition to the CBS news article, the report also points to a white paper Enviva published in 2020 titled, "Seeing the Forest: Sustainable Wood Bioenergy in the Southeast United States". The Blue Orca report displays a screen shot from the introduction section of the paper on page 5 (did they even read the white paper?) where it says, "[e]ntire mature forests are not being clear-cut for pellets."

Blue Orca Short Report, Page 5

Blue Orca Short Report, Page 5

White papers are not policies. White papers are meant to help explain complex issues. This is one of many examples within Blue Orca's report where the way in which information was presented is misleading. We question whether the researchers even read the white paper in the first place.

Diving beneath the surface within the white paper reveals important information about the logging industry in the Southeast U.S. Found on page 21 the paper explains that,

"The most common method to sell material from a tract at final harvest in a Southeast U.S. working forest is through clearcutting, and from a clear-cut comes multiple products: timber, chip-n-saw, pulpwood, and harvest residues. Only the last two products are economically feasible for biomass production."

Enviva White Paper, Seeing the Forest: Sustainable Wood Bioenergy in the Southeast United States, Page 21

To us, this does not look like the company is trying to mislead investors about wood pellet industry procurement policies. Clear-cutting is standard forestry practice in the Southern U.S. and has been for decades. Nowhere is Enviva claiming that they do not procure from clear-cutting operations.

A better source of the Enviva's procurement practices is the company's publicly available sourcing policy on its website, which makes no mention of refusing wood from clear-cut forests. There is no mention of clear-cutting anywhere in their policy, nor is it a reality or a reasonable expectation.

Below is a screenshot from Enviva's sourcing policy:

Enviva's Global Responsible Sourcing Policy and Pledges in Conservation Leadership, Page 2

Enviva's Global Responsible Sourcing Policy and Pledges in Conservation Leadership, Page 2

The above policy shows that Blue Orca's claims about clear-cutting are entirely irrelevant.

Finally, Blue Orca's report also claims that Enviva's business may be unviable because they are violating the EU commission's sustainable biomass rules. However, while the EU commission's policy does state that clear-cuts should be "minimized," that does not mean it isn't allowed. The statement about minimizing clear-cutting was taken out of context in our opinion. Here's the entire paragraph from the regulation,

As an investor in the stock for over four years now, we were never under the impression that Enviva did not take wood from clear-cut forests, particularly because anyone with knowledge of the Southeast U.S. timber industry knows this is standard practice. Enviva carefully ensures that they are not contributing to changing the use of a forest (cutting down trees to build homes, roads, etc.), that claim is made on the sustainability section of their website.

Enviva's procurement demand drives deforestation and the company's own track and trace data support those claims.

Our response: This is another misleading statement. Harvesting timberland that remains timberland is not the main concern when it comes to deforestation (look at what is happening to the Amazon in parts of Brazil). Enviva has designed policies and procedures that ensure it does not contribute to irreversible deforestation.

The report's suggestion that incremental demand from wood pellet manufacturing is leading to deforestation is silly when looking at the economics. Blue Orca again accuses Enviva of lying to investors, saying that Enviva only claims to take what is left lying on the forest floor. In our view, this is wrong and a massive oversimplification of timber operations.

The incremental demand from Enviva for wood is not a driver of harvest decisions because the material Enviva takes from a harvest is of the lowest value timber. Harvesting decisions are primarily determined by what a timber/forest owner can get by selling logs to mills for lumber. Enviva takes pulpwood and harvest residues and uses these sources to create pellets. Pulpwood and residues have the lowest economic value to timberland owners. The vast majority of profits comes from wood that can be used for lumber rather than for pellets.

According to Enviva's white paper,

"…wood biomass is a low-value commodity, which is least likely to drive harvest decisions, and biomass used for bioenergy comprises less than 3% of the total removals in the entire Southeast U.S. region."

For the stands from which Enviva purchases biomass, on average we take about 30% of what's harvested (and considerably less than that in terms of economic value given sawtimber is worth at least twice our low-value wood sources). The distinct majority of both the physical and economic harvest goes to other forest products facilities, such as sawmills or paper mills - and it is the combination of each of these markets that drive harvest decisions."

Enviva White Paper, Seeing the Forest: Sustainable Wood Bioenergy in the Southeast United States, Page 21

Blue Orca's report also claims that Enviva is lying when it says it only takes ~30% of the volume from timber harvests. The report cites multiple instances in their Track and Trace data where Enviva is taking close to 100% of a harvest.

"When we parse Enviva's Track and Trace data by the volume of forest purchased, the data shows that Enviva's proportion of the volume harvested exceeded its key reported threshold in 70% of the total acreage harvested by the Company."

Blue Orca Enviva Short Report, Page 15

We do not have any way to verify this data. Statistics is a messy thing. Is Blue Orca just taking the average? Are they taking a weighted average using the volume harvested? To be fair, we do not know exactly how Enviva is calculating their 30% average either, but we do not think one can just take the graph Blue Orca provided on page 15 of their report and treat it as sacrosanct.

It is worth noting that the 30% volume threshold is an overall average. At one source, Enviva may take more than 30%, but the company provides sound explanations in these instances. Of course, the Blue Orca report conveniently ignores this explanation in the white paper.

On Page 21 of the 2020 white paper, it says there are, "rare occasion[s] when we allow for 100% of the material from a tract to come to Enviva… [] for example, when early forest establishment was done poorly and a landowner needs to clear the land early to replant for timber, or when a loblolly pine tract is cut to be replanted and restored to native longleaf pine to support biodiversity in the region."

Enviva also discloses in the footnotes of the paper that timber markets are super localized so there are instances in which Enviva may become larger than 30% of the volume it says it typically takes.

Either way, the argument over Enviva's contribution to deforestation once again comes back to its procurement practices. Enviva wants to prevent a land use change. To prevent a change in land use, Enviva requires suppliers to sign off that harvested tracts are being re-planted, not converted into developments.

Additionally, while there are exceptions, in general it would be extremely poor business practice for a timberland owner to sell their certain wood fiber for pellet production when they can sell it for significantly more to other end-users. Recognizing that different parts of a timberland harvest have different values is key to understanding how the wood pellet industry impacts harvesting decisions.

Just as an example of how careful forest owners are, here's an excerpt from an article the WSJ did about forest owners in the southeast in 2018,

Notice the difference in pricing between wood that goes to the pulp mill (which is also what Enviva takes) and what a landowner can get for telephone poles, transmission lines and saw logs.

Wood as saw logs going to a lumber mill is ~7x more valuable than it is going to a company like Enviva.

Here is another screenshot from timbermart-south.com that shows again the difference in prices between sawtimber and chip-n-saw versus pulpwood.

In most circumstances, it would not make economic sense to harvest an entire tract of forest for just pellet production as pellet producers want to pay the lowest prices per ton for wood amongst any end market user of lumber.

Enviva's forest Inventory claims contradict independent data.

The Blue Orca article openly admits that forest inventories have increased in the region Enviva operates in. To an extent the increase in stock has been the result of the decline in the paper and pulp industry, but that also means Enviva's presence is not negatively impacting forest inventory in the regions in which it is operating. The incremental demand Enviva's business generates for pulpwood encourages landowners to re-plant trees rather than convert the land into a development.

Enviva shows in its investor presentation that forestry inventories have been growing in Enviva's sourcing region for years. The company uses the USDA Forest Service Forest Inventory and Analysis program to generate data that shows the inventory in Enviva's primary sourcing regions.

The article attempts to piggyback on the claims it made earlier about what Enviva is doing because if Enviva is contributor to deforestation then how is it that there is more standing wood in the U.S. Southeast than there was 10 years ago?

The authors are making weak claims of greenwashing and deforestation when you look at the big picture.

The report also claims that Enviva has driven landowners to replant softwood trees rather than hardwood and cites a Drax article showing that hardwood inventories have declined in their regions. We agree that hardwood stock has declined while softwood pine has increased, but Enviva has not been the cause of this. Certainly, Drax does not seem to think so.

"[t]his change has been driven by private forest owners (representing 91% of the total timberland area), seeking to gain a better return on investment from their forest land.

Hardwood markets have declined since the 2008 recession and demand for hardwood saw-timber has not recovered. Demand for pine saw-timber has rebounded and is now as strong as pre-crisis."

The decline in hardwood stock has more to do with the fact that hardwood saw-timber demand did not recover as quickly as softwood saw-timber because housing demand was weak for many years after the GFC.

Exodus of sustainability leadership is a red flag, and the firm has yet to replace these roles.

Investor relations communicated to us that Dr. Jennifer Jenkins had reached a point in her time at Enviva where her development of the firm's sustainability project had matured over the years. She was at a stage where she was ready to move onto a project that was at an earlier stage in its development. Dr. Jenkins built from the ground up Enviva's entire sustainability program over her half decade time at the company. Once the program had reached a point where improvements were marginal and was more in "maintenance mode" she was ready to explore a new challenge.

The report conveniently leaves out that Alan Kroger (the other sustainability leader that the report cites), was a notorious job hopper. According to his LinkedIn profile he has been at ~11 different companies since 2012. Since leaving Enviva in January 2021 he is already in his 3rd role.

IR was also able to provide detail as to the 3rd resignation that the article discusses. According to IR, the woman's husband received an excellent job offer at Apple in California, forcing her to work remotely. A big part of a sustainability job at Enviva requires being out in the field, which when you are living in California that becomes obviously quite difficult.

If this is such a red flag, why would the company be able to provide so much detail around the circumstances of these departures?

Finally, the article conveniently leaves out the fact that two months prior to Dr. Jenkins' departure, Enviva hired Donald Calloway as Vince President of Equity, Inclusion, and Impact. IR has described Enviva's sustainability program as being in the later stages, and therefore Donald Calloway seems fully capable of managing and developing the program going forward. A LinkedIn search reveals that a significant team remains in place under Mr. Calloway.

Evidence that Enviva provides equipment to loggers in exchange for reduced prices.

The lending of wood-chipping equipment to loggers is standard practice within the logging industry. Loggers have been in short supply because older loggers have retired, while younger loggers simply do not have the capital to purchase expensive machinery such as a $500,000 wood-chipper.

Enviva's IR team explained that this equipment represents just ~$10mm of logging equipment (as of 6/30/2022 Enviva has net PP&E of over $1.5B). They specifically said this relates to just 8 loggers and reiterated that this is standard practice.

Since this is such a small portion of the company's assets (0.7% of assets), we would argue that this is completely immaterial to the company's operations. To further claim that the company is overstating its adjusted gross margin because of this is simply ludicrous.

Enviva is going to cut its dividend due to negative distributable and operating cash flow and is inflating its EBITDA to prop-up its valuation.

Blue Orca claims that Enviva is dramatically over-paying its dividend, that the company has serially raised capital to continue paying their dividend, and that the company is likely to run out of cash by the first half of 2023. The report blames the recent deterioration in profitability on new costs Enviva has taken on after the company acquired its General Partner (GP) and converted to a corporation. Blue Orca believes this lower historical profitability is leading to alarmingly lower dividend coverage. However, these findings are founded upon faulty analysis of Enviva's historical financial performance.

We disagree with the characterization of the company being a serial capital raiser to fund the dividend as capital raises were related to acquiring assets from the company's Sponsor/General Partner. Enviva up until the fourth quarter of last year was structured as a now out of vogue MLP with a Limited Partner (LP) and a General Partner (GP). The GP took on the development risk, after which Enviva LP (the public company pre-conversion) would acquire them.

As an MLPs, the deferred federal tax treatment of Enviva's distributions allowed the company to attract equity investors. However, the company's distribution profile left little internal capital available to acquire assets. This resulted in Enviva relying on debt and equity financing to acquire plants developed by the GP.

In October of 2021, Enviva announced that it was acquiring its GP and was converting into a corporation (referred to as the "Simplification Transaction"). Under GAAP the Simplification Transaction required Enviva to recast financial statements retrospectively as if the combination between the LP and GP happened in 2010 (see page 26 of the company's FY 2021 10-K).

The recast financials, which combine the two companies retrospectively, are not a good reflection of the financial performance for any period before December 31, 2021. A different management team ran Enviva's GP and had separate goals from Enviva LP. The GP's and LP's costs and capital structures were also managed without regard for the other entity as well. Additionally, there were management agreements in place between the Enviva LP and GP that were re-written effective on December 31, 2021. As a result of the different cost structures and old management agreements, the recast financials of the Enviva LP and GP look terrible. The recast financials are what Blue Orca's report is relying on in their analysis.

To assist investors, Enviva's management provided non-recast Adjusted EBITDA and Distributable Cash Flow reconciliations in the Q4 2021 earnings release. The non-recast data presents the data assuming the two entities were still separated.

Enviva Q4 2021 Press Release Page 15 (March 1, 2022) Enviva Q4 2021 Press Release Page 16 (March 1, 2022) Enviva Q4 2021 Press Release Page 16 (March 1, 2022)

Enviva Q4 2021 Press Release Page 15 (March 1, 2022)

Enviva Q4 2021 Press Release Page 16 (March 1, 2022)

Enviva Q4 2021 Press Release Page 16 (March 1, 2022)

Note the non-recast Adjusted EBITDA for 2021 is ~$109mm higher than what the Blue Orca report is showing in their analysis. There is also a $137mm difference between the non-recast distributable cash flow amount in the above 2021 reconciliation compared to what Blue Orca calculated shows in their report. ($168mm vs. $31mm).

Relying on recast financial statements for periods prior to December 31, 2021, is an analytical mistake, but was the perfect avenue for a short seller to make unfamiliar investors concerned. Recast data makes it difficult for investors (particularly newer ones or retail investors) because it is not entirely clear how the combined company under one management team with the same goals and management agreements would have performed a year ago.

Blue Orca's decision to ignore the oddities of the accounting treatment related to the Simplification Transaction mischaracterizes Enviva's financial performance and its dividend coverage. While we admittedly would prefer a lower dividend and better coverage (which we have regularly expressed to the company), the below analysis understates Enviva's LTM coverage ratio by over 40%.

Blue Orca Short Report, Page 26

Blue Orca Short Report, Page 26

In our opinion (and management's), because of their new management agreements and changing cost structures, one should look at non-recast EBITDA for periods prior to December 31, 2021, to assess the true performance of Enviva.

Using non-recast data, the below analysis shows that distribution coverage on a non-recast basis is much healthier than what Blue Orca is attempting to convince investors.

On a TTM basis, non-recast distribution coverage is 0.8x. We recognize this is still below 1x but is still almost double what Blue Orca presented. The decline from 1.0x to 0.8x is explained by Enviva missing its first half expectations because of supply chain issues, Covid-19, and the war in Ukraine.

The reduced guidance also means that dividend coverage is going to be below 1x for 2022. The weakness in volumes in the first half of 2022 resulted in management cutting full year EBITDA and DCF guidance by $37.5mm. Note that if you add back the $37.5mm reduction in DCF guidance for 2022, then distribution coverage for this year would be over 1.0x. We expect distribution coverage to improve significantly in 2023 and beyond as the cash flows grow and the company keeps the dividend rate flat.

Beyond mischaracterizing the stock's valuation, the report also claims that Enviva's EBITDA is inflated because there is a significant difference between operating cash flow and Adjusted EBITDA. This is simply untrue because Blue Orca continues to rely on recast financial data to evaluate the business historically post the simplification transaction. The report also ignores changes in working capital, which can cause swings in operating cash flow between reporting periods.

Blue Orca Short Report, Page 27

Blue Orca Short Report, Page 27

Below we have reconciled OCF to adjusted EBITDA. Note that Q1 and Q2 2022 financials include the old GP's financial performance as financial statements in first half of 2022 represent the updated management agreements that were part of the Simplification Transaction. Notice when you back out working capital, interest expense, and one-time EBITDA add-backs, we get very close in terms of reconciling the sources of the differences between OCF and Adjusted EBITDA.

Using non-recast financial results, our calculations show that Enviva generated ~$207mm of EBITDA on a TTM basis as of the end of the second quarter of 2022. This means the stock trades closer to 21x TTM EBITDA, not 36X EBITDA as suggested by Orca. For an industry leader with a long-term contracted cash flow profile, with the potential to compound EBITDA at ~20% growth rates over the next few years, 21x is not super cheap but does not seem unreasonable either. To illustrate the robust growth, using our EBITDA estimates for 2023, at $60 Enviva trades at ~17x EBITDA. That is 4 turns of EBITDA cheaper with just one year of growth.

Cash flow is still strong at the company. Adjusted EBITDA is still a decent proxy for unlevered OCF excluding working capital as we can reconcile the numbers during Q1 and Q2 (which are the first full quarters that the new combined company operated under the updated agreements in place).

There is seasonality in this business as between 60% and 70% of EBITDA is generated in the 2nd half of the year and management has communicated that 2022 is likely to be one of the largest steps for the company ever.

Enviva expects to bring Lucedale online in the back half of 2022, which should lift EBITDA to ~$175mm in the 2nd half of 2022 from just $75mm in the 1st half. Given the visible growth Enviva is expected to achieve for the rest of this year, Orca's use of trailing data is quite misleading.

In 2023, we expect that the one-time issues from a Covid surge and invasion of Ukraine will not repeat. We've modeled that Enviva will generate EBITDA of ~$320mm. With Lucedale construction likely complete by the end of 2023, EBITDA should jump again to ~$365mm in 2024.

Enviva 2Q Investor Presentation, Page 16

Enviva 2Q Investor Presentation, Page 16

In the first quarter of 2022, Enviva specifically cited taking a hit from labor shortages and supply chain problems related to Covid-19 and Ukraine. The company also spent ~$10.8mm on acquisition fees and integration costs and $7.8mm in support payments (these support payments were part of an agreement when the company converted to a corporation which will end in 2023).

As Covid issues improved, the second quarter normalized with just $3.6mm of acquisition and integration costs. Importantly, there is no history of large recurring non-recurring charges, only those created out of the LP/GP merger.

Again, we do recognize that delivery challenges in the first quarter impacted volumes and cash flows. Coverage is admittedly weak right now, but we expect it to improve in 2023 and 2024. The dividend is likely to stay at current levels ($0.905 per quarter) for the foreseeable future as the company aims to build excess cash flow and avoid external financing altogether.

Note that from 2023 through 2026, Enviva will more than double their production capacity, driven by demand in Europe and Asia. Europe is suffering an energy crisis, and this output is critical to eliminating the need for coal and Russian gas. We expect that distributable cash flow will more than double from $185mm in 2022 to over $400mm by 2026, enabling ample distribution coverage.

Enviva 2Q Investor Presentation, Page 21

Enviva 2Q Investor Presentation, Page 21

Per the above slide, wood pellet volume demand is expected to grow globally by 90% between 2020 and 2030. The company in Q2 just added four new contracts with European customers. Taiwan also recently announced converting a large coal plant to biomass and appears to have expressed interest in working with Enviva. Enviva is ramping up capacity to meet needs for customers, all of whom we assume would rather not rely on fossil fuels from Russia. So, while wood pellets are not perfect, it is perhaps the best alternative for baseload power globally.

As for 2022, the company recently issued a press release reiterating their full year guidance and gave quarterly guidance expectations for Q3 and Q4. Enviva has good visibility as shipments are scheduled several months in advance.

Enviva has overpaid historically for related party acquisitions

Blue Orca Short Report, Page 30

Blue Orca Short Report, Page 30

The report claims that the change in EBITDA and Unlevered CFFO from numerous drop downs are drastically different than what Enviva suggests. Blue Orca claims that EVA likely paid 40% more than they claimed for the plants they acquired via drop-downs.

What the above analysis ignores is changes in working capital. A growing company requires more inventory and receivables over time and that impacts cash flow on a temporary basis. They also fail to mention that the company has a revolver available to fund working capital needs. The contracted nature of the company's business plus Covid has led to unusual swings in working capital.

In 2020 for example, accounts receivable was a use of ~$60mm of cash. That increase was likely the result of the company's expansion of their contracted portfolio and the timing of whether a ship left port before or after December 31st. Looking at the statement of cash flows, accounts receivable was a $24.1mm source of cash in the subsequent year.

Bigger picture, total working capital was a $29.3mm source of cash in 2021 after being a $25.7mm drag in 2020.

If you look at the model from above you can see that when you exclude working capital movements, adjusted unlevered OCF excluding working capital increased $116.7mm and adjusted EBITDA increased $114.4mm. This completely refutes Blue Orca's claims.

Blue Orca's short report was designed to invoke an emotional response about greenwashing and deforestation that simply ignores the realities of Enviva's operations, in our view. It also ignores the growing trend in the need for biomass energy globally, as relying on fossil fuels (especially from Russia) is far more dangerous than using sustainably sourced woody biomass.

Whatever one's feelings about burning anything for energy: coal, natural gas, diesel, oil or wood pellets, biomass is a vast improvement over fossil fuels and likely is here to stay. Burning wood does emit carbon, but if forests are replanted, there is a reasonable timeline between releasing the carbon and re-capturing it. In contrast, carbon from fossil fuels has been sitting underground for millions of years and can never be re-captured. Currently, it is prohibitively expense to sequester the carbon released from natural gas and oil drawn from a Russian well. Biomass can serve as a baseload source of power that does not have the intermittency issues that come with wind and solar generation.

Despite the recent drop in the stock, Enviva has been a solid performer since its IPO in 2016 (up 25% annualized since its IPO versus the S&P 500 up 9.5% annualized). Short interest in EVA stock rose significantly leading up to the release of the Orca report, and the stock did drop roughly 20% in the past week.

As for insiders, ValueAct Capital founder Jeffrey Ubben sits on Enviva's board and purchased ~$10mm of stock on 10/12/2022. It is hard to see how Mr. Ubben does not have a much better understanding than Blue Orca does about recent results and future expectations. In total, insiders last week picked up over $15mm of Enviva stock in the open market.

Most importantly, we were able to reconcile unlevered OCF to EBITDA recast figures. The Orca report purposely obfuscates working capital issues, improperly uses recast GAAP financials, and attempts to capitalize lots of one-time merger costs, all to suggest that EBITDA is overstated and the dividend about to be cut. We believe our figures clarify and reconcile any material cash flow and EBITDA differences.

Long term, we believe there remains significant potential upside in the equity over the next two to four years. In the near-term (one year), we see upside to ~$60-$65 or up ~20% in a year with dividends. That is ~17x our 2023 EBITDA estimate of $320.8mm. Looking to 2026, at 20x CAFD, Enviva is a $118 stock including dividends on our estimates.

In the short term, anything can happen, and downside could be in the mid $30's to $40. That is down ~25% with dividends and uses a 12x multiple on estimated distributable cash flow for 2023. At a price of $37, EVA would trade close to ~12x our estimated 2023 EBITDA, near historical lows.

After speaking with the company, the 7% dividend yield also appears safe. We like the stock for the long-term investor and continue to see biomass as continuing to play a key role in the means of improving our growing global energy needs.

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This article was written by

I have buyside analyst and portfolio management experience. My strategy is to seek to invest in the highest quality businesses I can find. I believe that companies with free cash flow conversion consistently close to or greater than 100%, low debt, above average EPS growth history and forward growth prospects will typically lead to market beating returns over the long term. Valuation still plays a critical role in my process. I rely on valuation regression models to determine good entry points.

follow me on twitter @njvalueinvestor as I'm looking to provide more of my daily musings there. 

Why Blue Orca’s Short Report Is Grossly Misleading (NYSE:EVA) | Seeking Alpha

Pto Wood Chipper Disclosure: I/we have a beneficial long position in the shares of EVA either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.