Shares of this bioenergy play could rally more than 50%, Raymond James says

Published Tue, Oct 18 20226:47 AM EDTUpdated Tue, Oct 18 20227:01 AM EDT

Wood pellet producer Enviva' s environmental attributes are being misunderstood – and that's unfairly harming its share value, Raymond James said. Analyst Pavel Molchanov upgraded the stock to strong buy from outperform while keeping its price target at $80, a 52.9% upside over last close. But he said the upgrade has nothing to do with any changes in the company's financial outlook and instead is due to what he sees as a deep misunderstanding of the company's product. The company makes wood pellets that can be burned for energy instead of coal. "For the first time in our 16 years of writing about sustainability, we are upgrading a stock ... as a direct result of the market misunderstanding the ESG attributes of the business. Nothing in this ESG-themed upgrade is directly related to our financial estimates," he said in a note to clients. "Today we are making an affirmative case for something that, to be candid, we never thought would become a point of contention: bioenergy is an environmentally and socially beneficial replacement for coal in power generation." The stock has been hurt by misconceptions, he said. That has made the entry point even more attractive as it stands to gain value with the value of wood pellets becoming increasingly understood. For instance, he made it clear that harvesting timber for use in wood pellets that can then be turned into renewable energy does not constitute deforestation. He said it is important to note that deforestation would mean trees harvested are not replanted, while Enviva does not operate any timber plants and only uses suppliers who commit to replanting. He also clarified wood pellets are cleaner-burning than coal, thus making their use better for air quality compared to coal. While he did note that it is unclear how the carbon dioxide lifespan compares, he said data clearly shows that human lives are saved when less coal is used for energy through the reduction of "smog," a term used to describe fog that comes from smoke. Molchanov pointed to wood pellets' role in Europe's clean energy transition, while calling Enviva "the world's largest player in this space." To be sure, he warned the company could be hurt by higher interest rates. The stock is up 3.5% before the bell, but is trading down 25.7% this year. — CNBC's Michael Bloom contributed to this report.