Generac Holdings (GNRC)

Generac Holdings (GNRC)

Summary:  On Sale

Score:  20/20

MOS:  80%

Share Price:  $403

Sticker Price:  $2,025

Is Generac stock a good buy?

Generac Holdings Inc. is an American manufacturer of backup power products for residential, light commercial, and industrial markets. They were founded in 1959 and are headquartered in Waukesha, Wisconsin. Generac manufactures all of its products in Wisconsin, with facilities in Oshkosh, Berlin, Jefferson, Eagle, and Whitewater. They are a global company with office locations in Canada, Mexico, Brazil, UK, France, Spain, Italy, Germany, Poland, Russia, Romania, United Arab Emirates, India, China, Singapore, and Australia.

Generac sells to both consumers and businesses. This is good because we like to see manufacturers that sell both B2C and B2B.

On the consumer side they sell home backup power generators, clean energy storage units that connect to solar panels, portable generators, pressure washers, water pumps, and snow blowers.

On the business side they sell industrial backup generators, mobile generators, light towers, heaters, and pumps.

Generac primarily sells products through channel partner distributors which include small electrical supply businesses on up to large public businesses including Home Depot and Lowe’s.

Here is what the news has to say.

This article from prnewswire.com states the worldwide generator industry is expected to reach $26.5 billion in 2026 at a CAGR (compounded annual growth rate) of 5.9% from 2021. This article states the increasing demand for uninterrupted and reliable power supply for both consumers and businesses. This is especially important for businesses in the manufacturing and industrial sectors. If operations come to a halt, that’s an immediate impact on sales.

This article from cnbc.com states that due to extreme weather events around the world, consumer generators have become in demand. Ice storms, snow storms, hurricanes, and fire are all major drivers for an increase in generator sales. Within this article, Generac’s CEO Aaron Jagdfeld said “We can’t make them fast enough and we’re doing everything we can to supply more product in the market.”

This article from prnewswire.com states that Forbes named Generac as one of America’s best midsize employers. Forbes worked with Statista to survey 50,000 Americans who work for companies with over 1,000 employees. Generac has built a culture that offers employees a positive work environment, flexibility, and career-building opportunities. Despite the global pandemic, the company successfully navigated the challenges presented and continued to support its customers and employees. 

This article from investorplace.com states that US industrial production is booming especially for steel, consumer goods, and energy related products. This article also states the recent pullback in the market related to Evergrande won’t have a meaningful negative impact on the global economy. China’s government looks ready to limit damages to its own country’s economy. This article also concludes by stating a US infrastructure bill that will fuel the industrial sector and some of the companies that will benefit include Caterpillar, GE, Plug Power, Arrival, and Generac.

This article from prnewswire.com states that Generac is establishing an internal ESG Steering Committee to improve its environmental, social, and governance standards. ESG is becoming an factor that employees care about. If Generac wants to attract top talent, it needs to place a high priority on ESG.

This article from newsfilecorp.com provides some unfortunate negative news on Generac. The Schall Law Firm, a national shareholder rights litigation firm, reminds investors of a class action lawsuit against Generac. Generac’s portable generators caused injury during operations and several customers lost fingers. To make matters worse, Generac’s public statements on the matter were not accurate which is the reason why the class action lawsuit is taking place. The specific generator models that caused injury are no longer being sold. Over the last year, there hasn’t been a significant pullback on the stock. Although this is negative news, it’s worth paying attention to.

 

Let’s see how Generac stacks up against the competition.

Generac (GNRC)

Summary:  On Sale

Score:  20/20

MOS:  80%

Share Price:  $403

Sticker Price:  $2,025

 

Schneider Electric (SCHNEIDER.NS)

Summary:  On Sale

Score:  12/20

MOS:  80%

Share Price:  ₹114

Sticker Price:  ₹577

 

Husqvarna AB (HUSQ-A.ST)

Summary:  Watch

Score:  13/20

MOS:  47%

Share Price:  kr105.00

Sticker Price:  kr198

 

Now let’s take a look at the 4 M’s.

MOS: The financials are impressive. A score of 20/20 and MOS of 80% are as good as you can get. When you look at key metrics such as the Revenue, Net Income, and EPS, there is a consistent growth rate over the last 5 years.

Meaning: On the business side, uninterrupted production for manufacturing and industrial companies is critical which is one main driver behind the steady revenue increase over the past five years. The other critical driver is the increase in extreme weather events. Generators are indeed becoming increasingly necessary.

Moat: There are a few global public companies to pay attention to but the generator market is not oversaturated. In this case, all competitors can thrive in this market. The companies that will shine above the rest are the ones who can streamline manufacturing operations. Knowing that Generac is known for being a good place to work, shows they can attract good talent which is a key component for operational efficiency.

Management: Aaron Jagdfeld has served as President and Chief Executive Officer since 2008. Prior to 2008, Jagdfeld worked for Generac for 15 years. He started in finance and worked his way up to CFO. Prior to Generac, Jagdfeld worked for Deloitte in an audit role. Jagdfeld has an excellent background, working for Generac most of his career and working for Deloitte, a large global management consulting firm.

 

Now let’s take a look at the financials. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

2017:  $1.6B

2018:  $2B

2019:  $2.2B

2020:  $2.4B

Revenue is increasing consistently which is a great sign.

 

Net Income (Found on the Income Statement)

2017:  $159M

2018:  $238M

2019:  $252M

2020:  $349M

Net Income is increasing consistently which is a great sign.

 

EPS (Found on the Income Statement)

2017:  2.58

2018:  3.57

2019:  4.09

2020:  5.64

EPS is increasing consistently which is a great sign.

 

Free Cash Flow (Found on the Cash Flow Statement)

2017:  $227M

2018:  $199M

2019:  $248M

2020:  $424M

Free Cash Flow significantly increased in 2020 which is a great sign.

 

Total Assets (Found on the Balance Sheet)

2017:  $2B

2018:  $2.4B

2019:  $2.6B

2020:  $3.2B

Total Assets have increased consistently which is a great sign.

 

Total Liabilities (Found on the Balance Sheet)

2017:  $1.4B

2018:  $1.6B

2019:  $1.6B

2020:  $1.8B

Total Liabilities are slowing increasing which is okay.

 

Total Debt (Found on the Balance Sheet)

2017:  $928M

2018:  $923M

2019:  $881M

2020:  $860M

Total Debt has decreased which is a great sign. Typically, as businesses grow, so can debt. The reason is, businesses will take out loans to support expenses such as the purchase of raw materials and the hiring of more employees.

 

Total Equity (Found on the Balance Sheet)

2017:  $559M

2018:  $761M

2019:  $1B

2020:  $1.3B

Total Equity has increased consistently which is a great sign.

 

Generac’s financials are very strong. A score of 20/20 and MOS of 80% are as good as you can get within Tykr. This makes sense because both the consumer and business generator market is in high demand and don’t appear to be slowing down. The one red flag to pay attention to is the class action lawsuit. We haven’t seen a significant drop in the share price, other than the recent pull back in the market which is impacting most companies. Overall, this is a solid manufacturing company to pay attention to.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.