Enviva is Not a Buy Even After 60% Stock Drop

Enviva Inc (NYSE:EVA) had a rough start to the year with a Q1/23 miss coupled with a guidance reduction and dividend elimination. The company lowered its 2023 adjusted EBITDA guidance to $200-250 million from the $305-$335 million it had affirmed at its investor day on April 3.

Although the stock is down around 61% since the earnings release on May 3, analysts at RBC Capital said they will remain on the sidelines until having more visibility into costs and contracted cash flow and see a material improvement in execution. The analyst cut their price target on the stock to $10 from $32 while reiterating their Sector Perform rating.

Enviva Inc. (NYSE:EVA) recently reported largely in-line Q3/22 results and re-affirmed its 2022 and 2023 adjusted EBITDA guidance. Analysts at RBC Capital provided a review of the company following the results, expecting it to benefit from market dislocations, which they believe should help it achieve its outlook by improving its adjusted gross margin.

The analysts updated their estimates and lowered their price target to $63 from $76 as they incorporate higher financing costs. The Sector Perform rating remained unchanged.

The analysts now forecast 2022/2023 adjusted EBITDA of $240 million/$307 million (vs. prior $240 million/$306 million) and DCF of $162 million/$203 million (vs. prior $167 million/$212 million). The analysts introduced their 2024 adjusted EBITDA and DCF estimates of $400 million and $282 million, respectively.

RBC Capital downgraded Enviva Inc. (NYSE:EVA) to sector perform from outperform, lowering their price target to $76 from $80.

While the analysts still believe in the longer-term growth potential for the company, they mentioned that the near-term headwinds, specifically around costs, are likely to cap any meaningful share price upside.

According to the analysts, in a normal inflationary environment the company’s cost escalators could more than cover its cost increases. However, in the current inflationary environment with PPI running at approximately 10%, the analysts have less visibility on cost recovery.

The analysts lowered their H2/22 adjusted EBITDA estimates to the low end of the company’s guidance given the potential for elevated costs and shipment delays in Q4. The analysts expect 2022/2023 full-year adjusted EBITDA to be $230 million/$300 million.

RBC Capital downgraded Enviva Inc. (NYSE:EVA) to sector perform from outperform, lowering their price target to $76 from $80.

While the analysts still believe in the longer-term growth potential for the company, they mentioned that the near-term headwinds, specifically around costs, are likely to cap any meaningful share price upside.

According to the analysts, in a normal inflationary environment the company’s cost escalators could more than cover its cost increases. However, in the current inflationary environment with PPI running at approximately 10%, the analysts have less visibility on cost recovery.

The analysts lowered their H2/22 adjusted EBITDA estimates to the low end of the company’s guidance given the potential for elevated costs and shipment delays in Q4. The analysts expect 2022/2023 full-year adjusted EBITDA to be $230 million/$300 million.