Generac Raises Guidance: Why Is the Stock Still a Hold?

Key Points

• Generac stock continues to find resistance even after raising its full-year guidance.
• The company’s earnings are still trailing 2021 levels even as revenue normalizes.
• Generac is entering the EV charging space, but it’s too early to tell if that’s something to charge up investors.  

Generac Holdings Inc. NYSE: GNRC delivered a solid second-quarter earnings report that included raising its full-year outlook for revenue and earnings. But this looks like a sell-the-news event. GNRC had climbed to a 52-week high before the earnings report, but the results don’t seem to be enough to move the needle.  

The headline numbers were mixed. Revenue of $998.2 million was just shy of the $1 billion analysts were forecasting. However, the company delivered a solid beat on the bottom line with an EPS print of $1.35 instead of the $1.20 forecast. 

The company also reported year-over-year (YoY) growth in its gross profit margin to 37.6% compared to 32.8% in the prior year. The news got even better when Generac raised its full-year outlook for revenue, earnings, and margin.  

Generac Stock: This Is an Earnings Story 

Normally, a 12.5% beat on earnings would generate more excitement for a stock. But that hasn’t been the case with GNRC stock. To help understand that, investors must understand that the last few years have been abnormal for Generac in terms of revenue and earnings.  

Revenue appears to be normalizing at 2021 levels. However, earnings are still down about 43% from that point. Not surprisingly, the company’s stock has been down about 62% since August 2, 2021.  

That would suggest that there could be a gap to fill. However, it appears that investors may be pricing in most of the company’s projected 30% earnings growth.

Hurricane Beryl Highlights the Need for Generac's Products

We’re now in the middle of the Atlantic hurricane season. As Hurricane Beryl proved, it just takes one of these storms to make landfall to complicate the lives of millions of Americans. President and CEO Aaron Jagdfeld remarked that the storm highlighted the need for the company’s products.  

Furthermore, Jagdfeld forecasts an increase in incremental demand for home standby and portable generators in 2024. And how big could that demand be? According to Jagdfeld, the entire residential generator market makes up only about 6% of the entire addressable market.  

Generac May Have Another Source of Revenue 

In mid-July, Generac launched its first Level 2 electric vehicle (EV) charger. The charger is Wi-Fi and Bluetooth enabled, giving consumers enhanced connectivity and control through the Generac EV Charging app.  

However, in entering the EV charging space, Generac is one of many technology stocks trying to get a piece of that business. Perhaps with that in mind, on July 30, Generac also announced it was expanding its commercial relationship with and increasing its minority interest in Wallbox NYSE: WBX, a global leader in smart EV charging and energy management solutions.  

Why Investors May Not Want to Get Too Charged Up About Generac

Despite the positive report and guidance, Generac looks like a Hold at this time. The Generac analyst forecasts on MarketBeat show that analysts are raising their price targets for GNRC stock. Notably, TD Cowen and Northland Securities boosted their targets to $172 and $180, respectively.  

However, the post-earnings dip confirms that there is resistance to moving the stock much past $160 per share. The price as of this writing is $155.19. Furthermore, the combination of slower institutional buying and rising short interest may suggest that most of the growth in GNRC stock is fully priced in. 

Therefore, investors looking to get involved may want to wait for a more significant pullback before buying the stock.