Generac Surges 40% in a Year: What Lies Ahead for the Stock?
Generac Holdings Inc. GNRC stock has surged 40.4% in the past year compared with the S&P 500 composite and the sub-industry’s growth of 31.5% and 19.6%, respectively. Closing at $150.84 in yesterday’s trading session, GNRC stock is currently trading 11% below its 52-week high of $169.57, attained on July 31, 2024.
Headquartered in Waukesha, WI, Generac is a leading manufacturer of backup and prime power generation systems for residential and Commercial & Industrial (C&I) applications, solar and battery storage solutions, advanced power grid software platforms and services, energy management devices and controls, and engine and battery-powered tools and equipment.
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GNRC’s Residential Products to Gain From Power Outage
Power outage activities surged in second-quarter 2024 owing to Hurricane Beryl, which affected multiple markets across Texas. This led to a surge in demand for home standby and portable generators. Management also highlighted a notable increase in home consultation activity in July due to the severe storm. Generac updated its sales expectations for 2024 owing to an increase in power outage activity, including the impact of Hurricane Beryl. For 2024, it now expects revenues to increase 4-8% compared with the earlier guidance of 3-7%.
GNRC highlighted tremendous growth potential in the domestic market, where only approximately 6% of the addressable market of homes is currently equipped with residential standby generators. The low penetration rate signifies a big opportunity for growth, particularly as awareness of the need for backup power solutions continues to heighten amid volatile weather.
GNRC’s Residential product sales jumped 8% year over year in the last reported quarter, driven by solid growth in home standby generator shipments. The mid-teens growth rate in home standby shipments from a weaker prior-year quarter performance (affected by excess field inventory) indicates improving market penetration.
GNRC’s Margin Expansion Bodes Well
Margin performance is gaining from a favorable sales mix and lower input expenses.
In the last reported quarter, gross profit was $375.6 million, up from $328.4 million in the prior-year quarter, with respective margins of 37.6% and 32.8%. Operating income came in at $103.2 million, up 20% year over year. Adjusted EBITDA, before deducting for non-controlling interests, was $165 million compared with $137 million in the prior year.
GNRC’s Estimate Revision Northbound
Reflecting the positive sentiment around GNRC, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for the current and the next quarters by 3.1% and 6.3% to $1.97 and $2.35 per share, respectively.
Moreover, the estimates for the current and the next year have improved 5.2% and 0.6% to $6.50 and $8.11 per share, respectively.
Attractive Valuation
Generac presents a compelling investment opportunity with its attractive forward 12-month price-to-earnings ratio of 19.62X, lower than the industry average of 28.28X observed in the past year.
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GNRC’s Troubled C&I Business Is an Overhang
Generac’s C&I segment has shown signs of recovery, but the pace has not been as expected. In the last reported quarter, C&I revenues totaled $344 million, down 10% year over year. The downside was due to softness in the domestic telecom and rental markets, which offset increases in shipments to industrial distributor customers. GNRC expects softness in telecom and rental markets to persist for the remaining part of the year.
Management anticipates continued downtrends for residential energy technology products and solutions throughout 2024. This is due to the troubled residential solar and storage market owing to structural modifications to California's net metering program and rising borrowing costs.
Nonetheless, Generac's acquisition of the PowerPlay Battery Energy Storage Systems unit from SunGrid Solutions and Ageto buyout is expected to boost its reach in the C&I energy storage market.
GNRC's Zacks Rank
Generac’s attractive valuation, strategic collaborations and synergies from tuck-in acquisitions bode well. However, weakness in the C&I segment and residential energy technology solutions portfolio is a concern for this Zacks Rank #3 (Hold) company. Consequently, it might not be a wise investment decision to bet on the Generac at the moment.
Stocks to Consider
Some better-ranked stocks worth consideration in the broader technology space are Seagate Technology Holdings plc STX, American Software, Inc. AMSWA and ANSYS ANSS. While Seagate sports a Zacks Rank #1 (Strong Buy), AMSWA and ANSYS carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for STX’s fiscal 2025 EPS is pegged at $7.41, unchanged in the past 30 days. STX’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while missing in the remaining quarter, with the average surprise being 80.9%. The stock has surged 68.1% in the past year.
The Zacks Consensus Estimate for American Software’s 2024 EPS is pegged at 38 cents, unchanged in the past seven days. AMSWA’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters while matching in the remaining quarter, with the average surprise being 84.53%. Its shares have declined 3.2% in the past year.
The Zacks Consensus Estimate for ANSS’ 2024 earnings is pegged at $9.96, unchanged in the past 30 days. ANSS’ earnings beat the Zacks Consensus Estimate in three of the last four quarters while missing the mark once, with the average surprise being 4.8%. Its shares have gained 10.1% in the past year.
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