Company Overview: Generac Holdings Inc. (NYSE: GNRC) is an energy technology solutions business. The company delivers power grid software solutions, prime power systems, and backup for home and industrial appliances.

­­­­­­GNRC Details

Material Business Updates

Historical Financial Trend:

GNRC illustrated sustainable historical growth in revenue until FY20 and edged considerably in FY21 with acquisition impact. The Normalised EBITDA has been growing since FY17 with a consistent increase in net income margin. Operating revenues grew at a 22.1% CAGR (FY17 – FY21).

Full-Year FY21 Performance:

Top 10 Shareholders:

The top 10 shareholders together form ~36.08% of the total shareholding. The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A., hold a maximum stake in the company at ~­­­10.41% and ~5.27%, respectively.

Key Metrics:

Top-line climbed on the back of acquisitions impact, increased demand for home standby generators and energy storage systems. C&I sales clocked the $billion mark, driven by national telecom and rental equipment customers.

Outlook:

Key Risks:

The global outbreak of COVID-19 has substantially affected the domestic and international supply chain, especially for industrial products. The principal raw materials like steel, copper and aluminium have witnessed a price hike, unveiling a requirement for cost controls.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation:

Performance Details: GNRC has delivered 3-month and 6-month returns of ~-14.311% and ~-32.270%, respectively. The stock is trading below the average of the 52-week high price of US$524.31 and the 52-week low price of US$251.74.

Valuation Rationale: The stock might trade at a slight premium because of the surged demand for power backups and energy systems in residential and C&I markets. For valuation, a few peers like Emerson Electric Co (NYSE: EMR), Allied Motion Technologies Inc (NASDAQ: AMOT), Hubbell Inc (NYSE: HUBB), and others have been considered.

Investment Rationale: Considering the favourable industry prospects, decent financial status, substantial top-line growth, current trading levels, and potential upside, we give a “Buy” recommendation at the closing market price of US$277.40, down by ~3.48%, as of 11 April 2022.

Markets are currently trading in a highly volatile zone due to specific macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

GNRC Daily Technical Chart (Source: REFINITIV)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.