Hayward ( NYSE: HAYW ) and Generac Holdings ( NYSE: GNRC ) have similar qualities, but Hayward ( HAYW ) is the better stock pick going into earnings season, analysts at Jefferies said Friday.
“We are looking for negative earnings revisions into 2023 for both companies, with destocking and lower consumer demand pressuring sales,” Saree Boroditsky, analyst at Jefferies, said in a January 20 report. “Earnings estimates have been coming down for both companies, but we are still modeling EBITDA below consensus expectations.”
As a supplier of swimming-pool equipment, Hayward ( HAYW ) has an advantage over Generac ( GNRC ) in recurring earnings. While Hayward ( HAYW ) generates about 80% of its sales from an installed base of 5.4 million pools, Generac’s ( GNRC ) sales are weighted toward the installation of new backup generators, according to Jefferies.
Pool owners are likely to replace pumps and filters, making them a nondiscretionary expense that benefits Hayward ( HAYW ). Backup generators such as those made by Generac ( GNRC ) get minimal wear and tear if the electrical grid is holding up, and the average life of a new generator is 15 to 20 years, according to Jefferies.
Battery systems that offer what is known as bidirectional charging are emerging as a competitor to home standby generators, possibly affecting Generac’s longer-term growth, according to Jefferies.
While both companies have stock buyback programs, Hayward ( HAYW ) has a chance for bigger gains than Generac ( GNRC ) offers, according to Jefferies.
In the past 12 months, Generac ( GNRC ) has declined 62%, while Hayward ( HAYW ) has lost 40% of its value, compared with a 5.7% slide for the Standard & Poor's 400 midcap stock index ( SP400 ).
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Why Hayward is better than Generac going into earnings season: Jefferies