[Updated: 7/2/2021] GNRC Stock Rise
A couple of weeks back we discussed that the stock price of Generac Holdings (NYSE: GNRC) may continue to rise in the near term, given increased demand for home generators. The stock has since appreciated a solid 17%. There are multiple positive triggers for the company, including continued demand for its home generators, a rebound in demand on the commercial side as the Covid-19 crisis winds down, its Deep Sea acquisition to enhance its generator automation capabilities, as well as increased focus on solar powered generators. We discussed these factors in our last update (below) on Generac. Recently, the company also announced its new product – V20 Pro – which offers all of diesel, battery, hybrid, main power and solar options in a single machine. This should aid the commercial side of the business over the coming quarters.
However, now that GNRC stock has seen a large rise of 29% in twenty-one trading days, will it continue its upward trajectory, or is a fall imminent? Going by historical performance, there is a higher chance of a decline in GNRC stock over the next month. Out of 48 instances in the last ten years that GNRC stock saw a twenty-one day rise of 29% or more, 31 of them resulted in GNRC stock declining over the subsequent one month period (twenty-one trading days). This historical pattern reflects 31 out of 48, or about 65% chance of a decline in GNRC stock over the coming month. Going by the historical performance, it may be prudent for investors to look for any dips to buy GNRC stock for better gains. See our analysis on Generac Holdings Stock Chances of Decline for more details.
Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using last ten year data
- After moving 2.2% or more over a five-day period, the stock rose in the next five days on 54% of the occasions.
- After moving 12.0% or more over a ten-day period, the stock rose in the next ten days on 53% of the occasions
- After moving 29.0% or more over a twenty-one-day period, the stock rose in the next twenty-one days only on 35% of the occasions.
Predict average return on Generac Holdings Stock Return: AI Predicts GNRC Average and Excess Return After a Fall or Rise
Generac Holdings Stock Return (Recent) Comparison With Peers And S&P500
- Five-Day Return: AOS highest at 5.8%; SPY lowest at 1.3%
- Ten-Day Return: GNRC highest at 12.0%; FELE lowest at -0.4%
- Twenty-One Day Return: GNRC highest at 29.0%; FELE lowest at -5.8%
[Updated: 6/15/2021] GNRC Stock Rise Factors
We believe that the stock price of Generac Holdings, an industrial company manufacturing power backup generators, has more room for growth at current levels of $355, despite it being up a massive 4.5x from the levels of under $80 it was at on March 23, 2020, when broader markets made a bottom. The 4.5x rise for GNRC stock compares with a 90% rise for the S&P 500. The significant outperformance of GNRC stock can be attributed to unprecedented demand for its home standby generators given higher power outages in the recent past. This has resulted in the company posting upbeat results over the recent quarters.
GNRC stock is also up a large 617% from the levels of around $50 seen toward the end of 2017. The rise over the last three years or so is justified given the company’s robust fundamentals. Generac’s total revenue of $2.5 billion in 2020 compare to $1.7 billion in 2017. This can partly be attributed to a significant rise in residential demand for power backup generators, outpacing the decline seen in the commercial segment, especially in 2020, due to the impact of the Covid-19 pandemic. Also, the company saw its net margins expand 470 bps to 14.1% in 2020, compared to 9.4% in 2017, resulting in a 122% rise in net income. The company’s total shares saw a growth of 1.4% over this period, and on a per share basis, earnings grew a solid 119% to $5.61 in 2020, as compared to $2.56 in 2017. Given the strong earnings growth over the recent years, Generac’s P/E multiple has expanded from 19x in 2017 to 40x in 2020. Our dashboard, ‘What Factors Drove 617% Change In Generac Holdings Stock between 2017 and now?‘, has the underlying numbers.
So what’s the likely trigger and timing for upside?
2020 has been a great year for Generac, led by a strong growth in demand for home standby generators and portable generators. This can be attributed to an increase in power outage and nationwide stay-at-home orders meant elevated concerns of power reliability for residential consumers. The company also benefited from increased shipments of the company’s solar power storage and backup solution – PWRcell energy storage systems. Higher residential products in the sales mix has resulted in margin expansion as well, a trend expected to continue going forward.
While the commercial side of the business saw a decline in 2020, primarily due to the impact of Covid-19, and several offices being shut with increased focus on work-from-home, the company expects a meaningful growth in demand for power backup solutions due to the emergence of 5G.  An increase in 5G rollout will also mean increased demand for power backup. Now that over 43% of the U.S. population is fully vaccinated, the demand for commercial generators will also rise as offices open up gradually.
In an another development, Generac announced the acquisition of UK based Deep Sea Electronics Ltd. for around $425 million. Deep Sea Electronics makes generator controllers, automatic transfer switch controllers, battery chargers, and vehicle and off-highway controllers. The company has a large distribution network with its products being sold in 150 countries. This acquisition will help Generac expand its capacity in generator controls and automation.
Overall, Generac is poised to benefit from the elevated demand environment, 5G rollout, and increased focus on cleaner energy. The company has delivered strong earnings growth over the recent years. Generac’s earnings on a per share and adjusted basis grew 37% to $6.47 in 2020, compared to $4.70 in 2018. However, given the demand outlook, the earnings are estimated to grow at a much higher pace to $11.22 in 2022, reflecting a 73% growth between 2020-2022. Given the strong earnings growth, the rise in P/E multiple is justified. As such, despite a massive 4.5x growth over the last year or so, we believe GNRC stock will continue to rise. In fact, the average price estimate for GNRC is $404 currently, implying a 13% premium to the current market price of $355.
While GNRC stock may see higher levels, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Techne vs Generac Holdings.