Generac Holdlings Inc.
GNRC Details
Generac Holdlings Inc. (NYSE: GNRC) is involved in the manufacturing of the widest range of power products in the marketplace that comprises portable, residential, commercial, and industrial generators. The company is also engaged in the designing and manufacturing manual and fully automatic transfer switches and accessories for backup power applications up to 2 MW.
Results Performance for the period Q1FY22
- Net Sales during the period increased by a robust 41% to $1.14 billion, compared to $807 million reported in the prior corresponding period. The growth was achieved on the back of an increase in both residential product sales and commercial & industrial product sales.
- The Group reported adjusted EBITDA during the quarter at $196 million, or 17.3% of net sales, compared to $214 million or 26.5% of net sales in Q1FY21.
- Net income in Q1FY22 stood at $114 million, or $1.57 per share, compared to $149 million, or $2.33 per share in Q1FY21.
- The company reported a cash outflow from operations at $10.1 million during the quarter, compared to a cash inflow of $152.5 million in the pcp. The decline was driven by significant working capital needs, particularly higher inventories due to ongoing supply chain and logistic issues.
- It ended the period with a cash position of $206.02 million as of 31 March 2022, compared to $147.34 million as of 31 December 2021.
Source: Company Reports, Analysis by Kalkine Group
Key Update
- On 12 May 2022, the company’s subsidiary, Generac Grid Services unveiled new electric-vehicle charging solutions for utilities and EV owners.
- On 10 May 2022, the company has announced the introduction of two new Powermate dual-fuel capable portable generators, the Powermate 4500 Watt Dual Fuel Portable Generator and the Powermate 7500 Watt Dual Fuel Portable Generator.
- The company has updated that it plans to release its Q1FY22 results on 04 May 2022.
- On 8 March 2022, the company stated that, effective immediately, it is temporarily suspending its branch operations and sales in Russia. Sales in Russia account for less than 1% of total revenue.
Outlook
The company buoyed by its Q1FY22 performance and further price actions being taken in the second quarter, has increased its full-year FY22 net sales guidance growth to be ~36% to 40% from the previous growth guidance of ~32% to 36%. It anticipates net income margin to be ~13 to 14% in FY22.
Key Risks
The company is prone to the risk of frequency and duration of power outages, thus impacting the demand for its products. Looming inflation concerns also pose a risk to the firm along with supply-side constraints. The Group is also faced with the risk of not being able to integrate successfully with its acquisitions, thus creating operational inefficiency.
Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)
Technical Overview:
Daily price Chart
Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)
Stock Recommendation
The company has delivered a 1-month return of ~-20.16%. The stock is trading lower than the average price of the 52-week low-high range at $197.94-$524.31.
The stock has been valued using an EV/Sales multiple based relative valuation (on an illustrative basis) and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the decent top-line performance in Q1FY22 and increase in sales guidance.
Considering the factors above, we give a “Buy” recommendation on the stock at the closing market price of $214.03 per share, as of 12 May 2022.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
Generac Holdlings Inc. (GNRC) is a part of Kalkine’s Global Fully Charged Product
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined:-
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Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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