By Sam Boughedda
Shares of Enviva Partners (NYSE:EVA) have been upgraded to Buy from Neutral, with the price target cut to $62 from $78 per share at Citi on Friday.
Citi analysts said they are becoming more bullish, and following a sell-off of the stock yesterday on a sell note by Blue Orca Capital which questioned the company's ESG claims, they have taken a closer look at the bearish arguments and believe the stock "overreacted to the negative."
They stated that the harvesting strategy is not a secret and may create an opportunity if policy changes.
"We hosted a fireside chat with management about this topic and others in recent months. The company consistently pointed out that some of its fiber came from timber that wouldn't be harvested if not for Enviva," wrote the analysts. "While a minority of the fiber, if there was regulation that eliminated this practice, EVA would adjust its purchasing strategy slightly. In the short run, it would increase costs but in the long run EVA would likely benefit as the southeast US is the marginal supply of this form of biomass."
They added that during the firm's meetings with Enviva management over the years, they have consistently pointed out that most, but not all, of its fiber supply were from trees that would have already fallen down.
"This concern around how GHG friendly is biomass isn't a new concern. This has been litigated several times over the last decade and each time EVA's business model has remained intact," the analysts remarked.