Generac Holdings Inc. (NYSE: GNRC): A Bright Spot in a Stormy Market
Generac Holdings is a key player in the manufacturing of backup generators, serving both residential and commercial sectors.
While the stock is currently trading close to its 52-week peak, consider these five reasons to invest in Generac before the end of the year.
1) Storms Increase Demand for Backup Power Generators
As the saying goes, “You sell more umbrellas when it’s raining.” This principle applies to backup generators as well. With increasingly severe weather patterns, often labeled as 100-year storms, the Atlantic hurricane season of 2024 (from June 1st to November 30th) has seen 17 tropical cyclones, including 11 hurricanes.
Hurricane Helene, the most significant storm since 2005’s Hurricane Katrina, reached wind speeds of 140 mph and caused power outages for 4.5 million customers across several states including the Carolinas and Florida. In such situations, backup generators present a faster and more economical alternative to installing costly solar energy systems or making major fixes to the power grid.
2) An Aging Power Grid Leads to More Outages
The United States faces challenges with its aging power grid, which is becoming increasingly overwhelmed. Energy generation grew by 9% year over year in 2024, driven largely by the rise of data centers powered by artificial intelligence, operated by hyperscalers like Microsoft Co. (NASDAQ: MSFT), Amazon.com Inc. (NASDAQ: AMZN), and Meta Platforms Inc. (NASDAQ: META). The adoption of electric vehicles (EVs) also puts more stress on the grid, originally built in the mid-20th century. Ongoing wear and tear, extreme weather events, and lack of upgrades mean that power outages are happening more often and lasting longer, particularly during severe weather like hurricanes and intense heat. California projects spending $30 billion to upgrade its power grid in line with clean energy goals. Generac has been chosen to negotiate a $50 million grant from the U.S. Department of Energy to develop clean energy microgrids in collaboration with the California Water Association.
CEO Aaron Jagdfeld notes, “The vulnerability of our nation’s electrical grid has never been more evident, as we have experienced the highest level of outage hours in the first nine months of the year since we began tracking outage data in 2010. The combination of more unstable weather and the increasing demand for electricity highlights the pressing need for backup power solutions.”
3) Expanding Internationally: Eyes on Europe and Asia
Although Generac earns 83% of its revenue in the U.S., the company aims to expand its international presence, particularly in Europe and Asia, where the aging power grid raises the demand for backup generators. Generac’s acquisition of the European generator manufacturer Pramac is part of its strategy to strengthen its presence in countries like Germany, Spain, France, and the United Kingdom. In addition, Generac is diversifying its clean energy portfolio to include battery storage and solar integration. However, international sales fell 20% year over year to $166.7 million in Q3 2024, mainly due to weak telecom markets and challenging conditions in Europe.
4) Strong Q3 2024 Earnings Results
Generac posted a Q3 EPS of $2.25, surpassing expectations by 30 cents, and generating revenues of $1.17 billion, which was up 9.6% year over year and exceeded predictions by $10 million. Residential sales surged by 27% to $723 million, while commercial and industrial sales grew by 15% to $328 million. Overall domestic sales rose by 14% to $1.02 billion, driven by strong demand for portable and home standby generators.
However, commercial sales to industrial distributors showed variability, affected by lower shipments for telecom and non-standby uses. Generac has raised its full-year revenue guidance for 2024, now projecting growth between 5% to 9%, equating to $4.22 billion to $4.39 billion, up from an earlier forecast of 4% to 8%. Additionally, net margins were revised upwards from 6.5% to between 7% and 8%.
5) GNRC: Bull Flag Breakout in Technicals
A bull flag pattern forms after a sharp price increase, creating a flagpole at the peak while the stock subsequently experiences lower highs and lower lows. A breakout occurs when the stock price pushes through the upper resistance trendline.
GNRC established this flag after peaking at $175.86, followed by a pullback characterized by lower highs and lows. The breakout happened when GNRC surged past the upper trendline resistance at $165.55 due to positive Q3 earnings, causing a rise in the daily RSI to the 77-band. Important Fibonacci pullback support levels are noted at $175.86, $161.54, $152.85, and $142.87.
Analysts set an average price target for Generac at $169.10, with the highest prediction at $210.00. Among the analysts, 11 rated the stock as a Buy, 9 as Hold, and one as Sell. Notably, the stock has a 4.3% short interest.
Actionable Options Strategies: For those bullish on Generac, cash-secured puts can be a strategy to acquire GNRC at the critical Fibonacci support levels below the consensus price target.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
