Generac Holdings Inc. GNRC stock has surged 13.9% in the past year, outpacing the S&P 500 composite’s growth of 9.3%. The Manufacturing General Industrial and the broader Industrial Products market have registered declines of 3.9% and 3.3%, respectively. 

Price Performance

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As the stock is currently trading about 33% below its 52-week high of $195.94, it raises the question of whether this pullback signals a buying opportunity.

To determine if it is the right time to buy, sell or hold the GNRC stock, we need to consider several key factors.

Let's Discuss GNRC’s Tailwinds

Momentum in Residential Products sales bodes well for GNRC. The company’s efforts to boost production to meet higher demand for home standby and portable generators amid increasing power outage activity is the primary tailwind leading to a 28% year-over-year growth in Residential Products in the last reported quarter. 

Higher shipments of residential-energy technology products (ecobee and Energy Storage systems) were another catalyst. Home standby shipments grew at a mid-20% rate from the previous year, due to elevated outage activity in the latter half of the year. Management highlighted a record increase in home consultations in the second half of 2024. 

For 2025, Residential Product sales are expected to be in the mid-to-high single-digit range, driven by shipments of home standby generators and residential energy technology solutions. Home standby generators are expected to be increased for the full year. Residential energy technology solutions’ revenues are anticipated to be between $300 million and $400 million for the year. ecobee anticipates delivering positive profitability for the full year.  New product launches (including PWRcell 2 MAX and our next-generation home standby generators), along with significant investments in boosting manufacturing capacity, are likely to drive revenues going forward. 

The strategic acquisition approach has played a pivotal part in developing Generac’s business. Acquisitions aid in obtaining synergies, leading to cost reduction and enhanced operational efficiency through the integration of resources. Generac's acquisitions in 2024 were strategically aligned to enhance its C&I segment, specifically focusing on Battery Energy Storage Systems (“BESS”) and microgrid controller technologies. 

Generac Holdings Inc. Price, Consensus and EPS Surprise

Generac Holdings Inc. price-consensus-eps-surprise-chart | Generac Holdings Inc. Quote

In August 2024, it announced the acquisition of Ageto. In June 2024, Generac strengthened its position in the acquisition front with the buyout of PowerPlay Battery Energy Storage Systems, a division of SunGrid Solutions Inc. PowerPlay is one of the leading providers of turnkey BESS solutions specifically built for C&I initiatives up to 7 MWh. The acquisition is likely to bolster Generac's ability to offer an end-to-end suite of products and solutions to its C&I customers, empowering them to achieve their energy goals.

Favorable Long-Term Trends 

Significant changes in the energy landscape, drastic climate change, aging power infrastructure and deployment of superfast 5G technology are likely to spur secular growth opportunities for Generac. The mega-trends have led Generac to formulate a new enterprise strategy, “Powering A Smarter World” in 2021. As a part of the strategy, the company has been working on developing residential and C&I ecosystems of connected energy solutions. This will help to address an increasing electricity supply-demand imbalance through improvement in energy resilience, optimizing energy efficiency and consumption, and protection and building of critical infrastructure. 

The proliferation of artificial intelligence applications has caused a spurt in the construction of energy-intensive data centers. This is likely to spur demand for power consumption or backup power in the near future, which in turn is expected to put pressure on the aging power grids. Generac's backup power portfolio is well suited to provide a resilient power supply as demand for electricity continues to surge. Next-generation energy technology solutions across residential and C&I product categories are likely to boost resiliency value through improved cost effectiveness and higher comfort.

Investment in Wallbox bodes well for GNRC amid the increasing prevalence of EVs. With increasing EVs, the ability to manage EV charging as part of a broader energy management system will become increasingly important, offering Generac a new avenue for growth.

GNRC’s Valuation

Generac’s forward 12-month price-to-earnings ratio of 16.29X is below the industry average of 20.17X observed in the past year. 

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Troubled C&I Unit & Other Challenges for GNRC 

Softness in C&I sales remains concerning. C&I revenues totaled $363 million, unchanged year over year. Increases in the domestic industrial, distributor and telecom channels were offset by weakness in other C&I end markets. Further, management expects 2025 C&I sales to be flat year over year. This is mainly due to growth from telecom C&I BESS and data center opportunities are likely to be offset by declines in rental beyond standby and domestic industrial-distributor shipments. Sales are also expected to be affected by a slight unfavorable impact from the net effect of foreign currency. For the first quarter, C&I sales are expected to be down in the high single digits.

Generac operates in an intensely competitive market, facing stiff competition from large diversified industrial companies and smaller generator manufacturers. High debt levels and increasing expenses remain concerning. 

In the last reported quarter, total operating expenses were $303.4 million, up 27.6% year over year, due to higher employee costs, marketing spending, variable expenses and incentive compensation. Higher operating costs could affect margin performance if revenues do not meet expectations, impacting profitability. As of Dec. 31, 2024, Generac had $281.3 million of cash and cash equivalents, with nearly $1.211 billion of long-term borrowings and finance-lease obligations. 

How to Play GNRC Stock

Generac’s strengthening residential business, strategic collaborations and synergies from tuck-in acquisitions bode well. However, weakness in C&I business along with stiff competition, high debt and increasing expenses remain concerning.

Given this, analysts seem bearish about the company’s prospects, as reflected in the downward revision for the current quarter and the current year. 

We believe new investors should wait for a better entry point, and existing investors should retain GNRC stock, which currently carries a Zacks Rank #3 (Hold). 

Stocks to Consider

Stocks worth consideration from within the same space are Applied Industrial Technologies, Inc. AIT, RBC Bearings Incorporated RBC and The Middleby Corporation MIDD, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for AIT’s fiscal 2025 EPS is pegged at $9.90, unchanged in the past seven days. AIT’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 5.3%. Its shares have increased 24.7% in the past year.

The Zacks Consensus Estimate for RBC’s fiscal 2025 earnings is pegged at $9.83 per share, unchanged in the past seven days. RBC’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with the average surprise being 4.89%. Its shares have surged 29.7% in the past year.

The Zacks Consensus Estimate for MIDD’s 2025 EPS is pegged at $9.70. MIDD’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, while missing twice, with the average surprise being 1.87%.

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This article originally published on Zacks Investment Research (zacks.com).

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