GNRC - Generac: Room For Expansion In The U.S. Residential Market

2024-06-17 13:42:27 ET

Summary

• Generac Holdings stocks are trading at fair market price.
• The revenue decline in 2023 seems attributed to short-term headwinds, not structural issues.
• Generac has the potential to continue expanding its market share in the foreseeable future as the company deepens its penetration in the domestic motor and generator market.
• Generac’s risk-reward profile has the potential to generate a positive excess return (alpha +0.2%) above its expected required rate of return.

Executive Summary

Generac Holdings ( GNRC ) stocks are currently trading around their fair market price.

Despite a sharp decline in revenue growth rates and profitability registered in 2023, we believe the causes must be attributed to short-term headwinds rather than structural problems which might indicate the deterioration of Generac’s business model.

Other than recovering its operating margin to historical levels, we believe Generac has the potential to continue expanding its market share in the foreseeable future - as the company deepens its penetration in the domestic motor and generator market thanks to its dominant market position - while maintaining good efficiency in terms of reinvestment needs, which would translate into solid free cash flow generation for its shareholders....

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