Generac Holdings Inc. GNRC stock has surged 27.7% in the past three months outpacing the S&P 500 composite and the sub-industry’s growth of 9.7% and 15.6%, respectively.
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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.
Closing at $187.45 in yesterday’s trading session, GNRC stock is currently trading 4% below its 52-week high of $195.94, attained on Nov. 13, 2024.
Does this recent pullback signal a buying opportunity? Let us dive into GNRC’s prospects and ascertain whether it is the right time to buy, sell or hold the stock.
Increasing Power Outage Activities to Drive GNRC’s Growth
Power outage activities surged in the third quarter of 2024 owing to Hurricanes Beryl, Helene and Milton, which badly affected multiple markets across the country. This led to an improvement in sales of home standby and portable generators in the third quarter of 2024, as residential product sales rose 28% year over year to $723 million. Management highlighted a notable increase in home consultations, reached an all-time quarterly record and remained strong in October due to the severe storms.
Generac has been making accretive investments in the production of home standby generators to meet the growing demand, supported by its strong supply-chain and operating capabilities. The company remains focused on expanding its residential dealer network, which reached 9,100 dealers by the end of the third quarter of 2024, indicating an increase of 400 dealers from the end of 2023. This expansion enhances the company’s ability to meet the growing demand for home standby generators and boost its market reach.
Generac updated its sales expectations for 2024 owing to recent power outage activity. The company expects an “outsized increase” in the Residential product division to partly offset weakness in the C&I business and Other product sales in certain end markets and geographies. For 2024, it now expects revenues to increase 5-9% compared with the earlier guidance of 4-8%.
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.
Favorable Long-Term Trends
Significant changes in the energy landscape, drastic climate change, aging power infrastructure and deployment of superfast 5G technology are likely to spur secular growth opportunities for Generac. The mega-trends have led Generac to formulate a new enterprise strategy, “Powering A Smarter World” in 2021. As a part of the strategy, the company has been working on developing residential and C&I ecosystems of connected energy solutions. This will help to address an increasing electricity supply-demand imbalance through improvement in energy resilience, optimizing energy efficiency and consumption, and protection and building of critical infrastructure.
The proliferation of artificial intelligence applications has caused a spurt in the construction of energy-intensive data centers. This is likely to spur demand for power consumption/backup power in the near future, which is expected to put pressure on the aging power grids. Generac's backup power portfolio is well suited to provide a resilient power supply as demand for electricity continues to surge. Next-generation energy technology solutions across residential and C&I product categories are likely to boost resiliency value through improved cost effectiveness and higher comfort.
Investment in Wallbox bodes well for GNRC amid the increasing prevalence of EVs. With increasing EVs, the ability to manage EV charging as part of a broader energy management system will become increasingly important, offering Generac a new avenue for growth.
GNRC’s Estimate Revision Northbound
Indicating 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 quarter’s EPS by 5.6% and 14.7% to $2.47 and $1.64 per share, respectively.
Moreover, the estimates for the current and the next year have improved 5.6% and 2.7% to $6.80 and $8.31 per share, respectively.
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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. C&I revenues totaled $328 million, down 15% year over year in the third quarter of 2024. Though increases in C&I product shipments through domestic industrial distributor channels were a tailwind, the core sales declined owing to weakness in domestic shipments for telecom, national equipment rental and beyond standby applications along with weaker market conditions in Europe.
Generac’s International sales decreased 20%, due to a drop in portable generator and C&I product sales in Europe. Management now expects C&I and other product sales to be approximately $50 million, below its previous outlook owing to soft market conditions in certain domestic regions as well as in Europe. C&I product sales are now expected to be down to high single digits year over year in 2024. The other sales category is forecasted to be nearly flat on a year-over-year basis for 2024.
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 Valuation
Generac’s forward 12-month price-to-earnings ratio of 23.05X which is almost parallel to the industry average of 23.43X observed in the past year.
Here’s How Investors Should Play GNRC Stock
Though C&I segment weakness is a concern, Generac’s strengthening residential business, strategic collaborations and synergies from tuck-in acquisitions bode well. Given the recent pullback from its 52-week high, investors have an opportunity to invest in this Zacks Rank #2 (Buy) stock.
Stocks to Consider
Some better-ranked stocks from the broader technology space are Plexus Corp., Inc. PLXS, InterDigital, Inc. IDCC and Workday Inc. WDAY. PLXS & IDCC presently sport a Zacks Rank #1 (Strong Buy), whereas WDAY carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PLXS’ fiscal 2025 EPS is pegged at $6.79, unchanged in the past seven days. PLXS’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with the average surprise being 10.3%. Its shares have increased 53.9% in the past year.
The Zacks Consensus Estimate for IDCC’s 2024 earnings is pegged at $15.22, up 12.5% in the past seven days. IDCC’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 163.7%. Its shares have surged 81.1% in the past year.
The Zacks Consensus Estimate for WDAY’s fiscal 2025 EPS is pegged at $7.11, up 2% in the past 30 days. WDAY’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 9.3%. The stock has declined 9.1% in the past year.
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