Generac Holdings ( NYSE: GNRC ) on Friday was downgraded to Neutral from an investment rating of Buy by analysts at Guggenheim Securities. They said the maker of backup generators and solar equipment is fairly valued after a recent rally.
“The company is making progress in its efforts to improve installation delays and bring its dealer inventory under control,” Joseph Osha, analyst at Guggenheim, said in February 3 report. “We would expect demand growth to normalize at a reasonable level, albeit not as strong as what the company enjoyed during the pandemic.”
Generac’s ( GNRC ) sales of home-standby generators surged as many people spent more time at home after the onset of the health crisis and needed a stable source of electricity. More recently, the company has confronted a shortage of electricians and contractors to install generators, and dealer inventories have grown.
Guggenheim maintained its estimate of Generac’s ( GNRC ) revenue at $3.7 billion for 2023, which is less than the Visible Alpha consensus estimate of $4.2 billion.
“With the stock having risen from its low of $90 in December to $131 as of yesterday, we think Generac ( GNRC ) now looks reasonably valued” at 19 times next-12-month EBITDA, according to Guggenheim.
Questions for Generac Management
When Generac ( GNRC ) reports quarterly earnings on February 15, Guggenheim will be looking for more insights on the company’s energy technology business. Guggenheim discussed the division’s strategy in a recent meeting with Generac’s ( GNRC ) management.
A key question is whether Generac ( GNRC ) will consolidate the business to reduce costs and offer a more focused product lineup. Companies such as Enphase ( ENPH ) and SolarEdge ( SEDG ) generate higher revenue with such a strategy.
“The result may not be dramatically lower spending – Generac ( GNRC ) may choose to invest in its areas of focus – but perhaps better returns on the company’s investments,” according to Guggenheim.
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Generac downgraded to Neutral at Guggenheim on valuation