Barclays Coverage on Generac Holdings (NYSE:GNRC)

Barclays has started coverage on Generac Holdings with an Equal Weight rating and a $189 price target. The decision is based on the company's appealing business model, though the stock's current valuation captures much of the recent optimism.

According to Barclays, "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 following a rise in the shares after an active storm season in 2H24.”

The bank highlighted that Generac has a favorable macroeconomic backdrop, benefiting from:
– An aging power grid
– Increasing extreme weather events
– Rising power demand driven by hybrid work, aging in place, and electrification trends

Barclays reported that since 2010, there have been 13 significant outages, with seven occurring since 2H20 and three in 2024 alone.

Generac’s home standby market penetration increased from 5.0% in 2020 to 6.2% in 2023. However, the analysts feel that the stock’s recent surge limits its near-term upside.

Since mid-September, Generac shares have jumped approximately 35%, significantly outperforming the S&P 500’s 7.5% increase over the same timeframe.

Barclays estimates that the stock is currently trading at an EV/EBITDA multiple of 15.0x, slightly above its 10-year average of 14.7x. This is attributed to heightened excitement after a busy storm season in late 2024.

While Barclays acknowledges possible near-term catalysts, such as unexpected outages, they stress that for long-term growth, Generac must transition into an energy management company.

The firm aims to introduce a new suite of products in 2025 to expand into clean energy technologies, including solar, storage, and EV charging. However, Barclays expresses doubt about this shift, citing the challenges new entrants often face in capturing market share in the competitive clean tech landscape.

In conclusion, while Generac’s fundamentals remain robust, Barclays prefers to “wait for a pullback in the stock” before giving a buy recommendation.