Generac Recharged
Generac Recharged
#64: After a pandemic boom and bust, what comes next for energy solutions company Generac Holdings (GNRC)?
Executive Summary
Generac Holdings Inc. (NYSE:GNRC) is a manufacturer of power generation systems, solar battery storage solutions, and other energy services. Its core products are standby backup generators for residential and commercial customers.
At face value, Generac is a fallen star of the pandemic bubble - a durable goods manufacturer that benefitted from cash-flush consumers and a massive home-improvement investment cycle. After posting 50% revenue growth in 2021, the company’s sales peaked in 2Q 2022 and have declined for three consecutive quarters. Lawsuits and product defects have further impacted sentiment.
Since October 2021, GNRC is down 70%, reducing its $31.9 billion market capitalization to $9.3 billion today.
But Generac is the dominant market player in the growing standby generator market and is a leading provider of battery backup systems. Its sales have grown at a 16% CAGR since its IPO in 2010. The recent financial downturn is set to reverse.
Grid Concerns Grow: Grid reliability is worsening due to increasing demand, aging infrastructure, changing generation mix, and severe weather. The frequency of power outages will continue to increase and drive demand for traditional backup power solutions.
Inventory Bullwhip: Recent financial results are heavily impacted by inventory overstocking in 2022 and de-stocking in 2023. End user demand is far more consistent and will continue to grow.
Narrative Rebound: The rebound in financial results in 2H2023 should help improve sentiment and build on the recent positive momentum in share price.
Smart Energy Solutions: Heavy investment in battery storage and smart grid products positions the company for growth in distributed energy solutions and protects against the risk of technological obsolescence.
In this piece, we cover:
Company Overview
Industry Drivers
Financial Performance
Valuation and Trading
Risks
Away we go…