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Generac (GNRC) Stock Up 35% in 6 Months: Is the Stock Worth a Buy?
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Generac Holdings Inc. (GNRC - Free Report) stock has surged 35.2% in the past six months compared with the S&P 500’s growth of 10.6%, respectively.
Image Source: Zacks Investment Research
However, it has underperformed the sub-industry’s rally of 39.4% in the past six months. While peers like Enphase (ENPH - Free Report) and Cummins (CMI - Free Report) have gained 0.9% and 15%, Acuity Brands’ (AYI - Free Report) shares have dropped 0.7% in the past six months.
GNRC is currently trading at a nearly 10% discount to its 52-week high of $169.57, reached on Jul 31, 2024.
Improving financial performance is behind the stock price surge. GNRC’s earnings beat estimates in three of the last four quarters, delivering an average surprise of 9.8%.
Image Source: Zacks Investment Research
Technical indicators are also supporting its strong performance. The stock is trading above its 100-day and 200-day moving averages, indicating upward momentum and price stability. This technical strength reflects positive market perception and growth prospects.
Image Source: Zacks Investment Research
Healthy Performance of Residential Products Business
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.
This growth is significant amid a challenging market environment and highlights the increasing consumer demand for reliable backup power solutions. The need for reliable backup power solutions is driven by a growing need for home resiliency amid rising power outages.
Power outage activities surged in the second-quarter of 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%.
Generac continues to focus on expanding its residential dealer network, reaching 8,900 dealers by the end of second-quarter 2024. The metric marks an increase of 200 dealers from the end of 2023.
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.
Investment in Wallbox Bodes Well
Generac recently increased its minority interest in Wallbox with an additional $35 million investment. Wallbox is a prominent smart electric vehicle charging and energy management company. In December 2023, GNRC made a minority investment in the company.
The incremental investment will expand the commercial agreement to include residential and commercial EV charging solutions across GNRC’s distribution networks. Additionally, GNRC is working on an aligned software development approach to extend the integration of Wallbox EV chargers with its dealer and customer platforms.
Investment in Wallbox bodes well 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.
Margin Expansion
The company reported significant expansion in gross and adjusted EBITDA margins in the second 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%. Gross profit margin performance gained from a favorable sales mix and lower input expenses.
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 a year ago.
Troubles in C&I Unit and Residential Energy Tech Portfolio
Generac’s Commercial & Industrial (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 mainly 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 mainly due to the troubled residential solar and storage market owing to structural modifications to California's net metering program and rising borrowing costs. Nonetheless, management remains focused on expanding market share through operational execution, resulting in reduced product lead times and optimization of domestic distributor channels.
Also, 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.
Upward Estimate Revision
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 next quarters by 2% and 6.8% to $1.97 and $2.35 per share, respectively.
Image Source: Zacks Investment Research
A Value-Driven Choice
Generac presents a compelling investment opportunity with its attractive forward 12-month price-to-earnings ratio of 20.27X, significantly lower than the industry average of 29.07X observed over the past five years.
Image Source: Zacks Investment Research
Its forward 12-month price-to-earnings ratio positions GNRC as a value-driven choice with significant upside potential.
Wrapping Up
Generac is well-positioned to gain from increasing demand for home standby generators amid a surge in power outage activities. Compelling 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) stock.
Image: Bigstock
Generac (GNRC) Stock Up 35% in 6 Months: Is the Stock Worth a Buy?
Generac Holdings Inc. (GNRC - Free Report) stock has surged 35.2% in the past six months compared with the S&P 500’s growth of 10.6%, respectively.
Image Source: Zacks Investment Research
However, it has underperformed the sub-industry’s rally of 39.4% in the past six months. While peers like Enphase (ENPH - Free Report) and Cummins (CMI - Free Report) have gained 0.9% and 15%, Acuity Brands’ (AYI - Free Report) shares have dropped 0.7% in the past six months.
GNRC is currently trading at a nearly 10% discount to its 52-week high of $169.57, reached on Jul 31, 2024.
Improving financial performance is behind the stock price surge. GNRC’s earnings beat estimates in three of the last four quarters, delivering an average surprise of 9.8%.
Image Source: Zacks Investment Research
Technical indicators are also supporting its strong performance. The stock is trading above its 100-day and 200-day moving averages, indicating upward momentum and price stability. This technical strength reflects positive market perception and growth prospects.
Image Source: Zacks Investment Research
Healthy Performance of Residential Products Business
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.
This growth is significant amid a challenging market environment and highlights the increasing consumer demand for reliable backup power solutions. The need for reliable backup power solutions is driven by a growing need for home resiliency amid rising power outages.
Power outage activities surged in the second-quarter of 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%.
Generac continues to focus on expanding its residential dealer network, reaching 8,900 dealers by the end of second-quarter 2024. The metric marks an increase of 200 dealers from the end of 2023.
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.
Investment in Wallbox Bodes Well
Generac recently increased its minority interest in Wallbox with an additional $35 million investment. Wallbox is a prominent smart electric vehicle charging and energy management company. In December 2023, GNRC made a minority investment in the company.
The incremental investment will expand the commercial agreement to include residential and commercial EV charging solutions across GNRC’s distribution networks. Additionally, GNRC is working on an aligned software development approach to extend the integration of Wallbox EV chargers with its dealer and customer platforms.
Investment in Wallbox bodes well 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.
Margin Expansion
The company reported significant expansion in gross and adjusted EBITDA margins in the second 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%. Gross profit margin performance gained from a favorable sales mix and lower input expenses.
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 a year ago.
Troubles in C&I Unit and Residential Energy Tech Portfolio
Generac’s Commercial & Industrial (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 mainly 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 mainly due to the troubled residential solar and storage market owing to structural modifications to California's net metering program and rising borrowing costs.
Nonetheless, management remains focused on expanding market share through operational execution, resulting in reduced product lead times and optimization of domestic distributor channels.
Also, 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.
Upward Estimate Revision
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 next quarters by 2% and 6.8% to $1.97 and $2.35 per share, respectively.
Image Source: Zacks Investment Research
A Value-Driven Choice
Generac presents a compelling investment opportunity with its attractive forward 12-month price-to-earnings ratio of 20.27X, significantly lower than the industry average of 29.07X observed over the past five years.
Image Source: Zacks Investment Research
Its forward 12-month price-to-earnings ratio positions GNRC as a value-driven choice with significant upside potential.
Wrapping Up
Generac is well-positioned to gain from increasing demand for home standby generators amid a surge in power outage activities. Compelling 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) stock.
Consequently, it might not be a prudent investment decision to bet on the stock at the moment. However, investors already owning the stock could stay put.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.