Generac Holdings ( NYSE: GNRC ) offers a better risk-to-reward ratio after stock in the maker of backup generators plunged this month, according to analysts at Wells Fargo Securities.
“While Generac may need to work through inventory issues in the near term, the long-term positive fundamentals for the business remain intact,” Praneeth Satish, analyst at Wells Fargo, said Monday in a report. He pointed to weather-related power outages and the instability of renewable sources of electricity as drivers of demand for backup systems.
Generac lost 25% of its value on Oct. 19 – the biggest single-day decline in data going back 12 years – after slashing its full-year outlook and saying Q3 revenue would be less than Wall Street estimates. The lower guidance led some analysts to downgrade their investment ratings for the stock .
Generac’s decline marks an adjustment for a company whose sales rose as the Covid-19 pandemic led many homebound people to install backup power equiment. Bearish investors have pushed for Generac to adjust its guidance to reflect softer demand as many people return to their pre-pandemic routines of going into the office.
“With the stock back to pre-Covid levels, the robust Covid-driven growth expectations are now out of the valuation,” according to Wells Fargo. The bank cut its price target to $175 a share from $285 while revising its EPS estimates for Generac.
Generac has fallen 67% this year, compared with a 21% decline for the S&P 500 Stock Index ( SP500 ).
Seeking Alpha contributor Logan Colhoun rates Generac ( GNRC ) as a Buy on its relative value . Columnist JR Research has a Buy rating on Generac ( GNRC ), saying the stock is undervalued after its selloff.
Wells Fargo estimate changes for Generac ( GNRC ), Oct. 24 | |||
Revenue (mln) | |||
New | Old | ||
2022E | $4,602 | $5,131 | |
2023E | $4,599 | $5,762 | |
2024E | $4,935 | $6,232 | |
2025E | $5,187 | $6,587 | |
2026E | $5,392 | $6,859 | |
2027E | $5,558 | $7,077 | |
Adjusted EBITDA attributable to GNRC (mln) | |||
New | Old | ||
2022E | $837 | $1,100 | |
2023E | $903 | $1,373 | |
2024E | $1,026 | $1,510 | |
2025E | $1,097 | $1,618 | |
2026E | $1,150 | $1,697 | |
2027E | $1,191 | $1,759 | |
Adjusted EPS | |||
New | Old | ||
2022E | $8.80 | $11.98 | |
2023E | $9.42 | $14.98 | |
2024E | $10.82 | $16.53 | |
2025E | $11.53 | $17.65 | |
2026E | $11.97 | $18.36 | |
2027E | $12.25 | $18.86 |
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Generac’s stock decline offers buying opportunity, Wells Fargo says