Consistent, reliable, and dependable sources of power are of paramount importance for every household and business. Preparedness needs to be at the forefront of every household and business as they plan for the future, and power sources should be a major component of those plans. Generac Holdings, Inc. (NYSE: GNRC) represents a pure-play name in power generation and energy storage solutions for residential, commercial, and industrial customers.
The company has a $20 billion market cap and has been in business for decades, tracing its founding to 1959 and is headquartered in Waukesha, Wisconsin. The core generator business features offerings that are air-cooled from 7.5kW to 26kW, liquid-cooled from 22kW to 150kW, and portable generators from 800W to 17.5kW. Other product lines include outdoor power equipment, light towers, mobile generators, dust suppression equipment, and clean energy solutions. On the commercial and industrial side, Generac makes generators that range from 10kW to 3,250kW in power size and are used to provide backup power supplies to a wide range of industries.
The company has established analyst coverage and of the 15 firms that cover it, 14 rate Generac a Strong Buy and 1 rating the company a Buy. The average price target of the analysts providing estimates is $466.63 which represents a potential upside of more than $100 per share from current levels. From a valuation perspective, GNRC is not cheap as defined by traditional metrics, with a price-to-earnings ratio (P/E) of 34 and EV/EBITDA of 23.1, however, it is rare to find such as focused product line within the specialized industrial sector as many firms operate as conglomerates.
Looking in the small-cap industrial space, a glance at firms such as Regal Rexford (NYSE: RRX), Pentair (NYSE: PNR), and Gates Industrial (NYSE: GTES) yields some additional insights on valuations. While not perfect comparisons, these firms have much broader product lines than Generac but at least touch power generation in some way. While all are similar or cheaper than GNRC on a P/E basis, with RRX having a ratio of 35.1, PNR at 17, and GTES at 15.3, none are growing earnings as fast. Generac has an EPS growth estimate of 18.9% for the next year, while RRX is expected to grow by 12.3%, PNR by 6.7%, and GTES by 14%. This demonstrates the value of a focused nice when it comes to product offerings as conglomerates tend to see valuation multiple suppression.
Some macro trends are providing Generac with tailwinds that should drive growth for the foreseeable future. In a recent earnings report, the company cited several factors fueling strong demand for generators, including the proliferation of severe weather events, customers spending elevated periods at home, and the solar to storage energy market growing rapidly as consumers look for solutions that increase sustainability. Recent natural disasters and weather-related events in California and Texas have demonstrated the need for residences and businesses to take greater control of their power supplies, and Generac should be a major beneficiary of this trend.
Favorable macro-environmental factors, a deep portfolio of solutions, and a long history of solid performance make Generac a solid candidate for investors to add to their watch lists. Reliable power is something that every individual and company needs to have a plan for, so GNRC represents a pure-play option that can benefit from those needs.
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