Generac Holdings Review: Generators, hurricanes and high cost

Обзор Generac Holdings: генераторы, ураганы и дороговизна

Generac Holdings (NYSE: GNRC) - American generator manufacturer. The company has a stable business with good conditions. But the stock looks overbeaten., and, it seems to me, all the positive is already embedded in the current price.

When creating the material, sources were used, inaccessible to users from the Russian Federation. Hopefully, you know, what to do.

What do they make money on

Generac manufactures and sells home appliances: pumps, Generators, high pressure washers, switches and other household appliances. A detailed list and description can be found on the company's website. The company provides solutions for both the consumer sector, and for professional industrial.

According to the company's annual report, by type of purpose, the company's equipment is divided as follows::

  1. Consumer Sector — 62,6%.
  2. Industrial sector and commerce — 28,3%.
  3. Other — 9,1%. This includes such services, how to sell spare parts, project management, remote monitoring services, extension of warranty service and so on.

By region, the company's revenue is divided as follows:

  1. USA - 84,04%. Adjusted EBITDA margin of the regional segment — 26,97% from his proceeds.
  2. Overseas sales in unnamed countries — 15,96%. Adjusted EBITDA margin of the regional segment — 5,14% from his proceeds.

Обзор Generac Holdings: генераторы, ураганы и дороговизна

Обзор Generac Holdings: генераторы, ураганы и дороговизна

Обзор Generac Holdings: генераторы, ураганы и дороговизна

Arguments in favor of the company

There is room to grow. In the US, the company occupies approximately 70% market, however only 3-5% of U.S. households own a generator. The company has defined its target audience quite well.: it's older people 60 years with an annual household income of about 130 thousand dollars per year. Frankly speaking,, these are people of retirement age and in a good financial position. Most older people move to live in the States on the coast, and as you probably know from the news, these places are often struck by natural disasters, cutting out electricity. And sometimes there are regional apocalypses., as it was in Texas last winter.

Considering, that the pandemic has spurred an exodus of boomers — the richest generation to date in the U.S. — to retirement, i would expect, that Generac products will be in demand for another 5-10 years or even more.

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Season. According to the annual report, from 27 to 31% the company's sales usually fall in the fourth quarter, when weather conditions in the U.S. disrupt power grids and natural disasters occur. So there is a possibility of growth in the company's financial performance during the current quarter..

Can buy. Given the profitability of the company, as well as a positive environment for its business, it may well be bought by some large holding. In absolute figures, Generac is worth a lot - capitalization is $ 27.759 billion. I think, taking into account all the positive aspects Generac can buy at a good premium to the current price.

Обзор Generac Holdings: генераторы, ураганы и дороговизна

Обзор Generac Holdings: генераторы, ураганы и дороговизна

The level of well-being of generations in the United States in 2019 year

Welfare, trillion dollars Number of people, million people Well-being per person
The Silent Generation 18,8 23,0 817 391 $
Boomers 59,4 71,2 834 270 $
Generation X 28,6 65,0 440 000 $
Millennials 5,0 72,6 68 871 $

What assets do different generations of Americans own?

70+ 55—69 40—54 ⩽ 39
The property 21,6% 20,5% 27,6% 37,9%
Durable Consumer Goods 3,8% 3,6% 5,2% 9,4%
Shares and mutual funds 24,6% 23,1% 18,6% 8,1%
Pension accruals 16,3% 25,0% 21,9% 21,0%
Private business 7,9% 9,7% 12,1% 8,1%
Other assets 25,8% 18,1% 14,7% 15,5%

What can get in the way

We need to think about it. Company P / E 53,44, P / S 8,11, it doesn't pay dividends — and its shares have more than quadrupled in a year and a half.. But revenue and profit didn't increase that much.. Strictly speaking, the company looks expensive and overbeaten by any standards, despite the positive conjucture.

I get the impression, that investors have given the company too much credibility – and it has nowhere to grow further. But there is room to fall..

Recently, the company released a quite decent report for the third quarter., but it turned out to be worse than analysts' expectations., and stocks fell by as much as 10%. All the fault of problems with logistics and rising costs, what all industrial enterprises are now facing. And you know what — these problems haven't gone away yet., which means, at least one next Generac report may be worse than expected. Which means, stocks may still fall. Or just not grow up - they are already quite expensive.

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Also, the inflated price tag of Generac can negatively affect the prospects of buying the company by someone larger.. Or the proposed premium to the existing price will not be so large., how generac's current shareholders would like.

Обзор Generac Holdings: генераторы, ураганы и дороговизна

What about dividends?? Introduce, what the company decides to spend more 80% from the company's profit on dividend payments. With the most optimistic option, it will turn out 7 $ per share per year. Then with the current stock price in 439 $ dividend yield will be 1,59% annual. it, sure, Better 1,25% annual average for S&P 500, but I doubt it, that such dividends will catch up with fans of passive returns, the inflow of which will pump up quotes even more. AND, sure, I doubt it, that the payments will be so generous, as in my abstract example. Most likely, if they appear at all, then will be scanty.

ESG everywhere. The company has solutions in the field of clean energy, but they do not give such a significant percentage of sales for that, for the company to scream about it on every corner. So I wouldn't have much hope for that., that the ESG lobby will pump up Generac quotes. By the way, in the ESG-rating of Sustainalytics in its subgroup, the company is on the 130th place, and the level of ESG risks in it is indicated as "very high".

So that, possibly, we should be concerned about the possible distrust of these stocks on the part of ESG investors.. Generac has no comment on this., that is, Nothing to be proud of. After all, now even "dirty" businesses like Covestro are not unsuccessfully trying to go on the topic of ESG, inflating their achievements in this field, even if there is nothing much to inflate.

What is the bottom line

Generac is a company with good business growth potential. But it is too expensive, and so far I see no reasonable reasons for further increase in quotations.

Though I could be wrong.: the company can continue to grow further through speculative exploitation of the clean energy theme, and if it has significant achievements on this front, one can hope for an influx of ESG investors. A resource for growth at the expense of ordinary investors, it seems to me, it's almost exhausted here – although you can take a chance and take these stocks., To view, what will come out. But personally, I would try to catch them in the region of 200-250 $ per rebound.

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