Generac Holdings Inc. (NYSE: GNRC) is one of the few benefactors of major storms and power outages.
The industrial products sector company is a leading manufacturer of backup generators for residential and commercial & industrial applications.
While the stock is trading near 52-week highs, here are five compelling reasons to step into this stock before year’s end.
1) Major Storms Ring the Alarm Bells for People to Have Backup Power Generators
As they say, “You sell more umbrellas when it’s raining." The same applies to backup power generators. The world is experiencing very unsettling weather events, often referred to as 100-year storms. The Atlantic 2024 hurricane season, lasting from June 1st to November 30th, has produced 17 tropical cyclones, with 11 of those storms turning into hurricanes.
Hurricane Helene was the biggest hurricane to hit the country since 2005's Hurricane Katrina, generating 140 mph winds and knocking out power to 4.5 million customers in the Carolinas, Florida, Virginia, Georgia, Ohio, Kentucky, Indiana, and Tennessee. Backup generators are a more economical and quicker solution for producing electricity outside of installing expensive solar energy systems or fixing the grid.
2) The Aging Power Grid Is Causing More Power Outages
The aging power grid infrastructure continues to shoulder massive strains in the United States as energy generation rose 9% YoY in 2024. Much of this has been driven by the growth and expansion of data centers powered by AI deployment and applications from hyperscalers like Microsoft Co. (NASDAQ: MSFT), Amazon.com Inc. (NASDAQ: AMZN), and Meta Platforms Inc. (NASDAQ: META). Electric vehicle (EV) usage will continue to tax the power grid. The U.S. grid was built in the mid-20th century. Due to wear and tear, extreme weather events, and insufficient upgrades, power outages are becoming more frequent for longer periods, especially during extreme weather situations like hurricanes, heat waves, and snow and ice storms.
California estimates it will have to spend $30 billion to upgrade its power grid to meet its clean energy goals. Generac was selected to enter into negotiations by the U.S. Department of Energy (DOE) to receive $50 million in a grant award under its Grid Resilience and Innovation Partnership in California. The aim is to collaborate with the California Water Association to integrate clean energy utilization microgrids utilizing battery energy storage during times of grid stress.
Generac CEO Aaron Jagdfeld stated, “The vulnerability of our nation’s electrical grid has never been more evident with the U.S. experiencing the highest level of power outage hours through the first nine months of the year since we began tracking outage data in 2010. In addition to more volatile weather, the rapid adoption of renewable, intermittent power generation sources and accelerating demand for electricity will likely lead to additional stresses on our aging grid.”
Jagdfeld concluded, “The elevated outage activity and growing grid-related supply-demand imbalances are expected to drive both continued near-term demand as well as long-term awareness of the growing need for backup power products."
3) International Expansion Focused on Europe and Asia
While Generac generates 83% of its revenue in the United States, the company is planning to continue expanding its international footprint. Generac is actively targeting Europe and Asia as demand for backup power demand is increasing due to their aging grid infrastructure. Generac's strategic acquisition of European generator maker Pramac was intended to grow its presence in Germany, Spain, France, Romania, China, and the United Kingdom.
Generac is expanding its clean energy solutions portfolio, which includes battery storage, energy management systems, and solar integration. The company continues to establish partnerships with installers and distributors to expand its reach and provide local support to consumers. However, its Q3 2024 earnings saw its international sales fall 20% YoY to $166.7 million due to softness in telecom and weaker market conditions in Europe.
4) Generac Produced a Solid Third Quarter of 2024 Earnings Beat and Raise
Generac reported Q3 EPS of $2.25, firmly beating consensus estimates by 30 cents on revenues that rose 9.6% YoY to $1.17 billion, which also beat consensus estimates by $10 million. Its Residential sales grew 27% YoY to $723 million. Its Commercial & Industrial (C&I) sales rose 15% to $328 million. Domestic sales rose 14% to $1.02 billion, driven by strong shipments of portable and home standby generators.
C&I product sales grew to industrial distributors, which were offset by the lower C&I product shipments for telecoms and beyond standby applications. Generac raised its full-year 2024 revenue guidance to grow 5% to 9% or $4.22 billion to $4.39 billion, up from earlier forecasts of 4% to 8% YoY. Net margins were also raised from 7% to 8%, up from $6.5% to 7.5%.
5) GNRC Triggered a Bull Flag Breakout
A flag pattern is formed after a parabolic price run, forming the flagpole at the peak as the stock makes lower highs and lower lows, as parallel descending trendlines indicate. The bull flag breakout triggers when the stock surges higher through the upper descending trendline resistance.
GNRC formed the flag after the run-up to $175.86. The pullback was comprised of lower highs and lower lows with parallel upper and low trendlines. The bull flag breakout was triggered when GNRC surged through the upper trendline resistance at $165.55 on its Q3 earnings report. This also caused the daily RSI to rise to the 77-band. Fibonacci (Fib) pullback support levels are at $175.86, $161.54, $152.85, and $142.87.
Generac’s average consensus price target is $169.10, and its highest analyst price target sits at $210.00. It has 11 analysts' Buy ratings, nine Holds, and one Sell rating. The stock has a 4.3% short interest.
Actionable Options Strategies: Bullish investors can consider using cash-secured puts to buy GNRC at the Fib pullback support levels under its consensus price target.
