Generac Holdlings Inc.

GNRC Details

Generac Holdlings Inc. (NYSE: GNRC) is involved in the manufacturing of the widest range of power products in the marketplace that comprises portable, residential, commercial, and industrial generators. The company is also engaged in the designing and manufacturing manual and fully automatic transfer switches and accessories for backup power applications up to 2 MW.

Key Positives:

Increase in Net Margin (14.9% in FY21 vs 14.0% in FY20), Increase in ROE (30.5% in FY21 vs 28.9% in FY20)

Key Negatives: 

Decrease in Quick Ratio (0.66x in FY21 vs 1.66x in FY20), Decrease in Current Ratio (1.60x in FY21 vs 2.60x in FY20)

Key Risks:

Competitive Risk, Operational Risk, Inflation Risk, Margin Risk, Demand Risk

Results Performance for the Year Ended 31 December 2021 – (FY21)

• Net sales grew 50% to a record $3.74 billion in FY21, and core sales reported growth of ~46% in FY21. The residential product sales grew 58% to $2.46 billion, and C&I product sales increased 42% to $1.0 billion. This was achieved on the back of record quarterly shipments in Q4.
• Before deducting for non-controlling interests, adjusted EBITDA stood at $861 million, or 23.1% of net sales.
• Net income attributable to the Company stood at $550 million, or $8.30 per share in FY21 and adjusted net income recorded at $619 million, or $9.63 per share.
• Cash flow from operations stood at $411 million during the year, and free cash flow was at $306 million.

Source: Company Reports, Analysis by Kalkine Group

Key Update

• The company has updated that it plans to release its Q1FY22 results on 04 May 2022.
• On 8 March 2022, the company stated that, effective immediately, it is temporarily suspending its branch operations and sales in Russia. Sales in Russia account for less than 1% of total revenue.

Outlook

The company anticipates strong revenue growth for FY22, driven by ramping home standby production capacity, rise in clean energy markets, solid broad-based global demand for C&I products, and recent acquisitions. The net sales are anticipated to rise in the range of 32-36% on an as-reported basis, including ~5-7% of the net impact from acquisitions and foreign currency. Before deducting for non-controlling interests, the net income margin is anticipated at 13.0-14.0% for FY22, with the corresponding adjusted EBITDA margin between 22.0-23.0%.

Key Risks

The company is prone to the risk of frequency and duration of power outages, thus impacting the demand of its products. Looming inflation concerns also poses a risk to the firm along with supply side constraints.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview:

Daily price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered a 6-month and one-year return of ~-54.26% and ~-27.15%, respectively. The stock is trading lower than the average price of the 52-week low-high range at $228.88-$524.31.

The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the reaffirmation of the net sales growth guidance for FY22, record quarterly revenue results in Q4FY21 and the continued exceptional demand environment.

Considering the factors above, we give a “Buy” recommendation on the stock at the closing market price of $230.32 per share, as of 27 April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Generac Holdlings Inc. (GNRC) is a part of Kalkine’s Global Fully Charged Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.