Generac Powers Up 8.79% on Growth Potential, Strong Texas Sales

Key Points

• Generac was the second-largest mover in the S&P 500, surging 8.79% to $142.53 in heavy trading volume. 
• Analysts rate Generac stock as a "hold" with a price target of $171.77, indicating an upside potential of 20.52%.
• Wall Street thinks the Generac stock forecast earnings will rebound in 2024, with a projected growth rate of 33% to $8.16 per share.

Generac Holdings Inc. NYSE: GNRC was the second-biggest price mover in the S&P 500 on June 27. The stock gapped up at the open and advanced $11.52, or 8.79%, to finish at $142.53. Trading volume was more than double.

With the day’s move, Generac shares cleared a four-month base with a buy point north of $141.54. You can track that base and the breakout using MarketBeat’s Generac chart. 

Shares were trading slightly higher after hours. 

Texas Sales Turn Up the Heat

What was the catalyst? 

Hot Texas weather.  

A brutal combination of humidity and high temperatures can make life miserable in the state, but imagine what could happen if the already-fragile Texas power grid goes down. 

In an interview with Bloomberg, Generac CEO Aaron Jagdfield said customers in Texas, where summer temperatures routinely hover near the century mark, are getting ahead of potential disaster. Jagdfeld said Texas, which has already been a strong market for the company, was seeing “a dramatic increase” in sales for generators and battery backup gear. 

Wisconsin-based Generac makes backup and prime power generation systems for residential and commercial and industrial applications, solar and battery storage systems, smart home energy management devices, advanced power grid software platforms and engine- and battery-powered tools and equipment.

Growing Sales Throughout the U.S. 

Generac’s sales have been historically strong in the northeast, where harsh winter weather has spurred customers to prepare for power outages. But the company is eyeing more markets throughout the U.S. as unreliable power grids and natural disasters make purchasing a generator more compelling. 

Generac stock has been in a strange position. It’s still well off its November 2021 high of $524.31. Earnings declined in 2022 and should do the same this year.

So where’s the growth stock case? 

MarketBeat’s Generac analyst ratings show a “hold” rating on the stock, but with a price target of $171.77, an upside of 20.52%. In total, 11 analysts have “buy” ratings, nine have “hold” ratings and four say “sell.”

Analysts See Earnings Growing Again 

In 2024, analysts expect Generac’s earnings to grow again to $8.16 a share, an increase of 33%. 

In the most recent earnings conference call, Jagdfeld said leading indicators for demand were strong in the first quarter, despite declining revenue. He noted that baseline power outage activity in the U.S. was well above the long-term average during the quarter, with several larger localized outages in multiple regions. That marked the highest baseline power outage activity level in the first quarter since the company began tracking outages in 2010

He said home consultations or sales leads were up significantly over the prior year, with broad-based growth in nearly every state.

In its regulatory filings, Generac pointed out that power reliability issues are rising, leading to increased demand for backup power solutions like generators and energy storage systems. Renewable power sources and aging grid infrastructure contribute to more frequent and severe power outages and rolling blackouts.

Opportunities Outside the U.S.

Generac sees significant opportunities for growth not only in the residential standby generator market domestically but also internationally. In addition, the solar, storage, and energy management markets are developing rapidly, presenting opportunities. The company also points out that the rollout of 5G networks necessitates improved network reliability, creating a demand for backup power solutions at cell tower sites.

Lest you think that Generac’s only business is in those noisy boxes parked outside homes, the company’s newest products are smart-grid ready, meaning that customers can connect and enroll their generator as a distributed energy resource in available grid services applications. The functionality includes an app to monitor home standby generators.  

So where does all this growth potential leave you as an investor in considering the Generac stock forecast?

Wall Street Likes the Story

The June 27 price action was encouraging, and the company has its eye on expansion. Wall Street is buying the story, given the earnings estimates for 2024. 

Given that the stock cleared a base in heavy volume and decisive price action, it’s currently in a buy zone. The medium- to long-term growth estimates and the company’s plans appear promising, but it may be a bit early to sustain the rally.