Should You Buy This Generator Stock to Invest in the U.S. Energy Grid?

Natural disasters, from hurricanes and earthquakes to droughts and floods, have the power to not only disrupt lives but also cause billions in damages. Recently, the devastating impacts of Hurricanes Helene and Milton left a trail of destruction, with experts estimating damages to exceed $50 billion. These storms now join the ranks of some of the most costly natural disasters in history, underscoring the immense financial and human toll they can bring.

However, while these catastrophic events disrupted entire regions, one company that benefited from this chaos was Generac Holdings Inc. (GNRC). As the leader in home backup power, Generac saw its stock light up amid the storm season. Shares surged sharply in early October as Hurricane Milton approached Florida, less than two weeks after Hurricane Helene left a trail of destruction, with North Carolina bearing the brunt of the devastation.

This is not the first time investors have turned bullish on Generac. The company also experienced a spike earlier this summer, following the destructive impacts of Hurricane Beryl. With the frequency of extreme weather climbing, Generac’s backup generators are becoming more of a must-have for households and businesses looking to stay powered up when the grid goes down.

Adding to its growth potential, Generac has recently been selected by the U.S. Department of Energy (DoE) to negotiate a $50 million grant under the Grid Resilience and Innovation Partnership program. As extreme weather intensifies, so does the demand for reliable power solutions, positioning Generac for continued momentum. But with these tailwinds in play, is now the right time to plug into this generator stock? Let’s take a closer look to find out.

About Generac Holdings Stock

Wisconsin-based Generac Holdings Inc. (GNRC) has been a game-changer in energy tech since its founding in 1959. Known for launching the first affordable backup generator, the company also pioneered the automatic home standby generator category. Today, Generac leads the charge with a full lineup of backup power solutions, energy storage systems, monitoring devices, and engine-powered tools for both residential and commercial needs.

With a focus on resilience, efficiency, and sustainability, Generac is powering the shift toward smarter, stronger energy solutions for homes and businesses alike. Valued at a market cap of almost $10 billion, shares of this generator provider achieved a 52-week high of $176.14 on Oct. 17. This remarkable climb was fueled by a spike in demand for backup power solutions in the wake of Hurricanes Helene and Milton, highlighting the urgent need for reliable energy amid nature's fury.

Down only about 6% from that peak, shares of Generac have rallied 101% over the past year, easily blowing past the broader S&P 500 Index’s ($SPX) 41.4% return over the same time frame. In 2024, the stock is up roughly 28.2%, outshining the SPX’s 22% gain on a YTD basis.

From a valuation standpoint, GNRC is trading at 25.07 times forward earnings, in line with its five-year average, but its price-to-sales ratio tells a more compelling story. Currently trading at 2.46 times sales, well below its five-year average of 3.89x, GNRC appears attractively valued, highlighting a potentially attractive opportunity to scoop up shares.

Generac Reports Mixed Q2 Results

Generac’s Q2 earnings results, reported on July 31, revealed a mixed bag of performance. While net sales of $998.2 million dropped marginally from the year-ago period and narrowly fell short of forecasts, the company’s adjusted EPS of $1.35 climbed a healthy 25% year over year and comfortably sailed past estimates by 8.9%.

The second quarter featured an 8% year-over-year rise in residential product sales, which hit $538 million thanks to strong demand for home standby generators. This growth helped counter a 10% annual decline in Commercial & Industrial (C&I) product sales, which dropped to $344 million. 

In addition, Generac’s gross profit margin surged to 37.6% in Q2, up from 32.8% a year ago, fueled by a favorable sales mix and lower input costs. This margin boost underscores the company’s ability to optimize profitability despite market challenges. 

For fiscal 2024, Generac raised its outlook, driven by increased demand following power outage events like Hurricane Beryl. The company now expects net sales growth of 4% to 8%, up from its previous 3% to 7% forecast. Management also boosted its projected net income margin to a range of 6.5% to 7.5%, alongside an upgraded adjusted EBITDA margin guide of 17% to 18%.

With robust operating and free cash flow generation anticipated, Generac aims to maintain a free cash flow conversion well above 100%, signaling management’s confidence in the company’s financial momentum. 

This week, the company is gearing up to reveal its Q3 earnings results before the market opens on Thursday, Oct. 31, and CEO  Aaron Jagdfeld is quite bullish on the upcoming quarter’s performance. 

In the Q2 earnings release, Jagdfeld pointed to Hurricane Beryl as a catalyst for rising demand in Q3 for home standby and portable generators, emphasizing the growing awareness of backup power solutions amid severe weather events. With only 6% market penetration for residential standby generators in the U.S., Jagdfeld sees ample opportunity for Generac to expand its leadership in this crucial segment.

Generac to Negotiate $50 Million Grant to Enhance Grid Resilience

More recently, on Oct. 21, Generac was selected by the Department of Energy (DOE) to negotiate a $50 million grant as part of the $10.5 billion Grid Resilience and Innovation Partnerships (GRIP) Program. This initiative, funded by the Bipartisan Infrastructure Law, focuses on enhancing grid flexibility, improving resilience against extreme weather, and ensuring reliable, affordable energy access.

Collaborating with the California Water Association (CWA), Generac will deploy innovative microgrids powered by battery energy storage at approximately 100 water utility sites in California, with over 55% of the sites located in Disadvantaged Communities (DACs).

The goal is to form virtual power plants (VPPs) that offer reliable load reduction during grid stress, ultimately improving local air quality, water reliability, and operational savings. The initiative will deploy battery systems at water utility facilities, bolstering resiliency during local outages and enhancing grid reliability during extreme events.

CEO Jagdfeld expressed pride in expanding the company’s clean energy solutions in California, building on its 65-year track record of providing reliable power to critical infrastructure. With California's electric grid increasingly strained by aging infrastructure and extreme weather, the need for sustainable energy solutions has never been more urgent.

What Do Analysts Expect For Generac Holdings Stock?

Analysts forecast that Generac’s profit will soar to $6.49 per share in fiscal 2024, representing a 20.2% increase from the previous year. The growth story is expected to continue into fiscal 2025, with expectations of a 25.6% rise, pushing profits to $8.15 per share.

Overall, Wall Street is optimistic about GNRC stock, with a consensus rating of “Moderate Buy.” Of the 24 analysts offering recommendations, 12 advise a “Strong Buy,” one suggests a “Moderate Buy,” nine give a “Hold,” one analyst advocates a “Moderate Sell,” and one recommends a “Strong Sell.”

The mean price target for GNRC is $169.52, indicating an upside potential of around 2% from current levels, while the Street-high target price of $210 implies that the stock could rally as much as 26.7% from here.

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On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.