Generac Holdings Inc. (GNRC, $196.16): Generac powers returns forward”
By: Sean O’Leary, AIM Student at Marquette University
Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.
• Generac Holdings Inc. (NYSE:GNRC) designs, manufacturers, and sells power generation equipment and power products for residential and industrial markets in the United States, Asia, and Europe.
• GNRC has seen soldi demand for its residential business in homeowners working/learning from home and the increase in extreme weather causing a demand for home-standby and portable generators.
• The Consumer and Industrial business have remained weak and isn’t expected to rebound till 2021 due to the pandemic.
• Management has planned to offer a new generator that is designed to charge batteries, which would in theory allow solar storage homeowners to go off-grid.
• GNRC has hit all time highs and is expected to keep climbing on its strong residential business, as well as its 5G and energy storage opportunities.
Key points: Generac remains a strong investment. The generator company has grown significantly over the past ten years through the need for generators in growing number of natural disasters and GNRC’s ability to create new products to meet consumer’s needs. In GNRC’s investor presentation sent out in September 2020, the company laid out the growth in power outages over the past ten years and how going forward this will continue to drive the need for GNRC’s portable generators.
Not everything is positive for GNRC though, they have had declines in demand on their consumer and industrial products in them being exposed to the cyclical non-residential construction industry. Until the pandemic gets under control the non-residential construction industry will remain down and will negatively impact the need for GNRC’s Industrial and Consumer products.
GNRC’s CEO mentioned during a meeting with J.P. Morgan that GNRC’s demand is the highest he has ever seen in his 30-year career with GNRC. GNRC is selling out of its capacity and is planning on adding temporary production lines that should increase capacity by about 20%. Management also mentioned that a second permanent production facility is in the works to be operational by mid-21, which would be a nice increase in overall production by around 70-80% from existing levels.
GNRC is well positioned to tap into a new market in being the only generator company offering clean power solutions and generators. Through solar and storage solutions bundled with generators it is uniquely positioned to provide power during long-duration outages. Creating a new generator that is designed to charge batteries, it can help home solar and storage homeowners be able to move more freely off a specific grid. Going forward, the growth opportunities that GNRC has created for itself will propel it forward and help the stock price climb further.
What has the stock done lately?
In 2015 GNRC was trading around $30 and since has grown 557% to $196 were it sits today. This is significant growth and are all time highs for GNRC. GNRC has benefited greatly in the need for generators in aging grids and increasing natural disasters that demand GNRC’s products.
Past Year Performance: YTD Generac is up 95.95% and has hit all-time highs. GNRC is well above the target price of $130.39 when it was pitched back in March of 2020. GNRC is at a high valuation but has room to grow in the need for portable generators and GNRC’s ability to create new products to meet market demands.
Source: FactSet
My Takeaway
GNRC has seen phenomenal returns since March 2020 and the valuation is a tricky one. GNRC has had such success because they have proven that they are company that has been able to withstand the effects of the pandemic because their products are essential to their customers. With more people getting older and becoming dependent on power, grids aging and not being able to withstand extreme weather, and an increase in extreme weather, GNRC is well positioned to have success in its generator’s products going forward. Adding to this, GNRC has created clean energy products that are the first of its kind representing a huge growth opportunity in a new and ecofriendly market. I believe that GNRC is hold with the many growth opportunities that they have going forward.
Source: FactSet
