- Generac’s (GNRC) two main businesses are growing very rapidly.
- The company reported very strong fourth-quarter financial results.
- The stock’s valuation is attractive, and Goldman Sachs is quite upbeat on GNRC stock.
Generac (NYSE:GNRC) is entrenched in two fast-growing energy markets that should continue to expand rapidly for many years. Meanwhile, the company’s financial results have been very strong and the valuation of GNRC stock is reasonable. Further, Goldman Sachs just gave it a tremendous vote of confidence.
In light of these points, I believe Generac’s shares are poised to outperform over the long-term, so I advise investors to buy GNRC stock.
| GNRC | Generac | $287.97 |
GNRC Stock Is in Two Very Strong Markets
In general, climate change is making strong storms like hurricanes more intense. As a result, there is, of course, a higher chance of losing electricity during these longer-lasting storms with higher winds and more precipitation. That’s because such weather events are more likely to knock down power lines and other electrical infrastructure.
According to the U.S. Geological Survey:
“With increasing global surface temperatures the possibility of more droughts and increased intensity of storms will likely occur. As more water vapor is evaporated into the atmosphere it becomes fuel for more powerful storms to develop. More heat in the atmosphere and warmer ocean surface temperatures can lead to increased wind speeds in tropical storms.”
So it’s not surprising Generac’s sales to consumers jumped 42% year-over-year in the fourth quarter. The move was “driven by a substantial increase in home standby generator shipments and continued momentum in power cell energy storage shipments,” as CEO Aaron Jagdfeld explained on the company’s Q4 earnings conference call.
Generac is also in the “solar plus storage” sector. While Generac did not report how much revenue it obtained from that business, it did note that “the solar plus storage market continues to expand rapidly, and we expect to see significant year-over-year growth again during 2022.”
As I’ve stated in prior columns, the demand for solar energy is rapidly increasing around the world, driven by its affordability and government incentives.
Strong Financials and a Reasonable Valuation
In Q4, the company’s overall sales jumped 40% year-over-year to $1.07 billion. Generac’s net income, excluding certain items, came in at an all-time high of $619 million versus $412 million during the same period a year earlier.
On a negative note, amid supply chain issues and high inflation, the company’s cash flow from operations fell to $411 million from $487 million. But over the longer term, these problems should ease.
On the valuation front, the forward price-to-earnings (P/E) ratio of GNRC stock is a reasonable 27x, according to Yahoo Finance. Given the company’s rapid growth and strong profitability, that valuation is actually quite attractive.
Goldman raised its rating on the shares to “buy” from “neutral” and added the shares to its prestigious Americas Buy List on April 5. “We see continued momentum driven by GNRC’s complete consumer product offering across clean energy and stand-by generators, combined with lead generation algorithm refinement,” the firm stated.
While Goldman is concerned about “a cyclical downturn” in the home generator market, the fact that shares had tumbled 37% from their November highs led it to upgrade the stock with a $410 price target.
Another firm, Alpine Capital, stated last December that the company’s “new clean energy business will result in valuation multiplier expansions leading to significant upside for its shares.”
Generac’s strong, positive catalysts leave it very well-positioned to outperform the market over the next six months and year. That makes GNRC stock a good buy for long-term growth investors.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
