Generac Holdings Inc. (NYSE: GNRC) helped lift market sentiments yesterday after delivering better-than-expected earnings for the first quarter of 2022. Shares of this $16.4-billion company increased 11.8% to close at $261.78 on Wednesday.
The company is well-known for its energy storage systems, power generation equipment, and other products (including product accessories and grid services). The company operates through its headquarters in Waukesha, WI.
Currently, the company has a Strong Buy consensus rating based on 13 Buys and one Hold. Also, Generac Holdings’ average price target is $399.93, suggesting 55.9% upside potential from current levels.
Let us discuss what is keeping the spark alive for Generac Holdings.
Sound Financial Performance
In the first quarter of 2022, Generac Holdings’ adjusted earnings were $2.09 per share, above the consensus estimate of $1.94. The earnings beat of 7.7% marked the company’s 20th consecutive earnings surprise.
Revenues were $1.14 billion in the first quarter, up 4.6% from the consensus estimate of $1.09 billion. On a year-over-year basis, the top line increased 40.7%, driven by sales growth of 39.3% in the Domestic segment and 49.2% in the International segment.
Sales of residential products in the quarter increased 43.3% year-over-year, while commercial & industrial products expanded by 37.7%, and other products grew by 27.5%.
Pricing actions during the quarter played an important role in partially curbing the ill impacts of labor, commodity prices, logistics costs, and supply-chain-related headwinds.
Generac Holdings’ President and CEO, Aaron Jagdfeld, said, “We continued to experience robust and broad-based growth during the first quarter, and strong execution pushed shipments to new records.”
“We made better-than-expected progress towards our production targets, which helped drive our top line beyond expectations during the quarter despite the ongoing challenging operating environment,” Aaron added.
Promising Projections for 2022
Generac Holdings anticipates revenues to increase within the range of 36%-40% year-over-year in 2022, higher than the previous expectation of 32%-36% growth. Healthy production in the first quarter and pricing actions to be taken in the second quarter motivated the company for this revision.
The impacts of foreign currency and acquisitions on the revised top-line growth projection are expected to be within the 5%-7% range.
On the other hand, the company reiterated its net income margin projection in the 13%-14% range for 2022.
Buyouts Fueling Strength
Generac Holdings has expanded its product line, market presence, and growth opportunities through multiple acquisitions made over time.
In 2021, the company’s spending on acquisitions (net of acquired cash) amounted to $713.5 million. The company acquired Deep Sea Electronics in June, Chilicon Power in July, Off Grid Energy and Apricity in September, Tank Utility in October, and ecobee in December.
Foreign currency changes and acquisitions added 8% to first-quarter revenues.
Robust Growth Drivers for the Long-Term
Generac Holdings sees solid growth opportunities for its grid services and clean energy businesses from a trend favoring electrification and distributed energy resources.
Also, the increasing use of natural gas, development in the telecommunication space, adoption of electric vehicles, and people spending more time at home are a few other trends that are likely to boost demand for the company’s products in the years ahead.
By 2024, the company predicts served addressable market (SAM) of $60 billion for its grid services business while anticipating revenue of $350 million from its new energy technologies. Also, the company anticipates a market penetration rate of 5% to 8.25% for home standby generators in the 2021-2024 time period. Such high rates of penetration mean more business for Generac Holdings.
The company expects its global total addressable market (TAM) in residential space to be approximately $10 billion by 2024. Also, the industrial TAM is projected to increase at a mid-to-high-single-digit CAGR, and the TAM for new energy technology is expected to be $5.6 billion.
Aaron Jagdfeld said, “We are focused on building out our energy technology solutions portfolio as the decarbonization, digitization, and decentralization of the power grid will create further growth opportunities for our business in the years ahead.”
Positively Inclined Supporting Data
On May 4, Mark Strouse of J.P. Morgan maintained a Buy rating on Generac Holdings while lowering the price target to $455 (73.81% upside potential) from $469.
A few days ago, Jeffrey Hammond of KeyBanc reiterated a Buy rating on GNRC while decreasing the price target to $350 (33.70% upside potential) from $435.
In addition, roughly 83% of the financial bloggers are Bullish on GNRC (versus the sector average of 69%), reveals the TipRanks Blogger Opinion & Sentiment tool.
Also, the TipRanks Crowd Wisdom tool suggests that investor sentiment is presently Very Positive on GNRC. In the last 30 days, the number of TipRanks portfolios holding GNRC stock has increased by 5.1%.
Conclusion
It is evident from the aforementioned points that Generac Holdings might be a worthy investment option for long-term investors. In the near term, the company is navigating headwinds and using effective pricing actions as a balancing tool. The company anticipates sequential improvements in gross margin driven by gains from its pricing actions through the rest of 2022.
Over the last year, shares of Generac Holdings have declined 18% and are currently trading near the low end of the 52-week range of $217.11-$524.31. At a relatively low price, gaining exposure to Generac Holdings might prove a cheap bargain for investors.
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