Investing.com -- Barclays initiated coverage on Generac Holdings (NYSE:GNRC) Inc. with an Equal Weight rating and a $189 price target, citing an attractive business model but a stock valuation that already reflects much of the recent optimism.

"We find GNRC's business an attractive one with its low penetration and high market share, but believe the stock is fairly valued at current levels subsequent to a run-up in the shares on the heels of an active storm season in 2H24," said Barclays (LON:BARC).

The bank notes that Generac benefits from a favorable macroeconomic backdrop.

According to Barclays, factors such as an aging power grid, rising extreme weather events, and growing power demand due to hybrid work, aging in place, and electrification trends have bolstered the market for backup power solutions.

“Since 2010, there have been a total of 13 major outages, with seven occurring since 2H20 and three in 2024 alone,” Barclays noted.

Generac’s home standby market penetration has accelerated, growing from 5.0% in 2020 to 6.2% in 2023.

However, the analysts believe the stock’s recent performance tempers its near-term upside potential.

Generac shares have risen approximately 35% since mid-September, outpacing the S&P 500’s 7.5% gain over the same period.

Barclays estimates the stock is trading at an EV/EBITDA multiple of 15.0x, slightly above its 10-year average of 14.7x, driven by heightened excitement following an active storm season in the second half of 2024.

Barclays acknowledged potential near-term catalysts, including higher-than-expected outages. However, for longer-term growth, Generac’s ability to evolve into an energy management company is seen as crucial.

The company plans to launch a new suite of products in 2025 to expand into clean energy technologies such as solar, storage, and EV charging.

Barclays expressed skepticism about this transition, noting that new entrants often struggle to gain market share in the competitive clean tech space.

Barclays concluded that while Generac’s fundamentals remain strong, they would prefer to “wait for a pullback in the stock” before recommending it as a buy.

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