Generac Holdings 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.
Q3FY21 Results Performance (For the Quarter Ended 30 September 2021)
- The company has reported an increase in its net sales by 34% to reach a record $943 million during the period compared to $701 million in the pcp.
- Core sales growth, without considering the impact of acquisitions and foreign currency, stood at approximately 30%.
- Net income attributable to the company increased to $132 million, or $1.93 per share from $115 million, or $1.82 per share in the pcp.
- Free cash flow stood at $42 million compared to $148 million in the pcp. The decline in free cash flow was mainly on account of higher working capital investment and capital expenditures during the period, which was partly offset by an increase in operating earnings.
Source: Company Reports, Analysis by Kalkine Group
Recent Update
- On 1 December 2021, the company declared the closing of the strategic acquisition of ecobee Inc. This acquisition will aid in further developing suite of offerings around an intelligent home energy ecosystem, thus benefiting both homeowners and grid operators
Outlook
The company has maintained its FY21 net sales growth guidance range of around 47 to 50% compared to the prior year after considering around 5% of favorable impact from acquisitions and foreign currency. Although the company continues to witness an exceptional demand environment, further supply chain constraints, escalating logistics challenges, and rising input costs are increasingly putting pressure on margin. Further, coupled with the impact of recent acquisitions, GNRC has guided its net income margin, before deducting for non-controlling interests to be around 15.0% for FY21 compared to its earlier guidance of between 15.5 to 16.0%. The corresponding adjusted EBITDA margin is forecasted to stay at around 23.5% against its earlier guidance range of approximately 24.5 to 25.0%.
Key Risks
The company’s results are exposed to the risks of fluctuations in interest rates, foreign currency exchange rates, commodities, product mix, and regulatory tariffs. Further, the demand for its products is impacted by the frequency and duration of power outages. Failure to successfully integrate the acquisitions also remains a potential risk.
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 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 reaffirmation of the net sales growth guidance for FY21, record quarterly revenue results in Q3FY21 and the continued exceptional demand environment.
Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of $306.28 per share, down 1.31% as of 14th January 2022.
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.
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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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