UFP Industries, Inc. (UFPI - Get Rating) and Enviva Partners, LP (EVA - Get Rating) are two of the largest manufacturers and sellers of wood and wood-alternative products operating in the United States and internationally. UFPI markets preserved and unpreserved dimensional lumber, outdoor living products, and engineered wood components. EVA sells  products that are used as a substitute for coal in power generation and combined heat and power plants.

A combination of higher timber demand from the U.S. home construction and  home remodeling industries and supply shortages resulting from pandemic-induced disruptions have caused lumber prices to jump approximately 200% since last April. With consumers moving to take advantage of low mortgage rates, the demand for new buildings and for supplies to renovate existing buildings is not expected to decline anytime soon. Against this backdrop, we think UFPI and EVA should continue to see significant revenue growth through at least year’s end.

While UFPI has returned 23.1% year-to-date, while EVA has gained 6.7%. In terms of their past month’s performance, UFPI is the clear winner with 13.3% gains versus EVA’s negative returns. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

On March 1, the UBEECO Group, a wholly owned subsidiary of UFPI, acquired the assets of J.C. Gilmore Pty Ltd, a leading distributor in the industrial and construction industries in Australia. The transaction should not only diversify UFPI’s portfolio but also expand its customer base significantly across Australia.

Last month, UFPI’s subsidiary Sunbelt Forest Products Corporation, agreed to acquire the net operating assets of Spartanburg Forest Products, Inc. and its affiliates for approximately $17 million. This addition should  help UFPI better serve its customers as well as expand its  capacity and global footprint.

In January, the board of directors of EVA’s general partner declared a quarterly distribution of $0.78 per common unit for the fourth quarter of 2020. It marks the company’s twenty-second consecutive distribution increase since its initial public offering, representing  a 15.6 % improvement from the fourth quarter of 2019.

Last December, EVA partnered with GoChain, a blockchain company that drives the adoption of impactful technology, to pilot blockchain technology for innovation, sustainability, and transparent biomass supply chains. This move should further increase the accuracy of EVA’s proprietary Track & Trace (T&T) system, which is used for tracking low-value wood used in the production of the company’s biomass.

Recent Financial Results

In the fourth quarter, ended December 31,UFPI’s net sales increased 40% year-over-year to $1.39 billion, attributable primarily  to an increase in unit sales and lumber prices. Its earnings from operations were $88.2 million, reflecting 70% growth year-over-year. UFPI’s gross profit was $187.06 million, representing a 19% increase from the year-ago value. And its  retail solutions revenue grew 76% from the prior-year quarter to $505.2 million over the period.

EVA’s net revenue increased 38.3% year-over-year to $277.31 million in the fourth quarter ended December 31, 2021. However, the company generated a gross margin of $26.6 million, versus  $28.2 million for the corresponding quarter of 2019. It reported a net loss of $0.44 million and a loss per share of $0.24 over this period.

Past and Expected Financial Performance

UFPI’s revenue and ebitda have grown at CAGRs of 9.4% and 22.3%, respectively, over the past three years. Also, the CAGR of the company’s tangible book value has been 17%. In comparison, the CAGRs of EVA’s revenue and ebitda have been 17.42% and 17.44%, respectively, over this period. Its tangible book value has increased at a CAGR of 13.2% over the past three years.

Analysts expect UFPI’s revenue to increase 41.8% in the current quarter, 26.3% in the current year and 2.3% next year. UFPI’s EPS is estimated to increase 33.8% in the quarter ending March 30, 2021, 14.2% in fiscal 2021, and 9.9% in 2022.

EVA’s revenue is expected to increase 24.1% in the current quarter, 28.6% in 2021 and 17% in 2022. A consensus EPS estimate of $0.28 for the quarter ending March 30, 2021, represents a 7.7% improvement from the same period last year.

Profitability      

UFPI’s trailing-12-month revenue is significantly higher than EVA’s . But EVA is more profitable, with a gross profit margin of 21.9% versus UFPI’s 15.5%.

However, UFPI’s ROE and ROA of 18.5% and 10.4%, respectively,  compare favorably with EVA’s 6.7% and 3.9%.

Valuation

In terms of trailing-12-month non-GAAP p/e, EVA is currently trading at 45.82x, 160.3% higher than UFPI, which is currently trading at 17.60x. Also, its trailing-12-month ev/sales of 3.14x is 278.3% higher than UFPI’s 0.83x. EVA is also more expensive in terms of trailing-12-month price/cash flow (16.48x vs 12.92x).

POWR Ratings

UFPI has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. However, EVA has an overall D rating, which translates to Sell. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

In terms of Value Grade, UFPI has a B, consistent with its lower-than-industry p/e ratio. EVA’s Value Grade of D is reflective of its higher-than-industry p/e ratio.

Also, in terms of Growth Grade, UFPI has a B, which is consistent with its expected growth in earnings and revenue. In comparison, EVA has a Growth Grade of D.

UFPI has a Sentiment Grade of B, which is in sync with the analysts’ expectations about its earnings and revenue growth. In comparison,  EVA has a Sentiment Grade of C.

Of the six stocks in the A-rated Industrial – Wood industry, UFPI is ranked #4 while EVA is ranked #6.

In addition to what we’ve  stated above, our POWR Ratings system also rates both UFPI and EVA for Quality, Stability, and Momentum. Get the ratings for UFPI here. Also, click here to see the additional POWR Ratings for EVA.

The Winner

While both UFPI and EVA are good long-term investments considering their market leading positions and business efficiency, UFPI appears to be a better buy based on the factors discussed here. Even though EVA has been  undertaking expansion projects rapidly to  deliver solid organic growth, UFPI’s impressive financials, higher profitability, and relative undervaluation make it a better investment option now.

Our research shows that the odds of success increase if one  bets on stocks with an Overall POWR Rating of Buy or Strong Buy. If you’re looking for other top-rated stocks in the Industrial – Woods industry, click here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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UFPI shares were trading at $70.20 per share on Wednesday morning, up $1.80 (+2.63%). Year-to-date, UFPI has gained 26.69%, versus a 5.18% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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