On Wednesday, Barclays (LON:BARC) initiated coverage on Generac Holdings (NYSE:NYSE:GNRC), a leader in backup power generation products, with an Equalweight rating and a price target of $189. Currently trading at $186.86, InvestingPro analysis suggests the stock is slightly undervalued, with a market capitalization of $11.12 billion. The new price target reflects the company's current market position and growth prospects in light of recent industry developments.
Generac's business has been recognized for its low market penetration yet high market share, which makes it a notable player in the backup power industry. The company has demonstrated strong momentum with a 44.58% year-to-date return. The analyst from Barclays highlighted that the stock appears to be fairly valued at present, following a significant increase in its price.
This increase was attributed to an active storm season in the second half of 2024, which heightened the demand for Generac's products. InvestingPro subscribers can access 13 additional key insights about Generac's financial health and growth prospects.
The company's prospects are bolstered by a macroeconomic environment that includes an aging power grid, increasing extreme weather events, and the growing need for reliable backup power solutions. These factors are particularly relevant given the rise in hybrid work arrangements, the trend of aging in place, and the surge in overall power demand due to increased electrification.
Generac's market share in the home standby segment has shown notable growth, with a 120 basis point increase from 2020 to 2023, bringing its penetration from 5.0% to 6.2%. With a healthy current ratio of 2.03 and projected revenue growth of 7% for FY2024, the company maintains strong financial fundamentals.
This growth rate is significantly faster compared to the earlier period from 2005 to 2010, where market share only grew by 100 basis points. For detailed analysis and comprehensive financial metrics, investors can access Generac's full Pro Research Report on InvestingPro.
The company has benefited from a series of major power outages, with 13 significant disruptions since 2010. Notably, seven of these outages have occurred since the second half of 2020, including three major events in 2024 alone, underscoring the increasing importance of Generac's offerings in the current market.
In other recent news, Generac Holdings reported a significant increase in third-quarter sales for 2024, with net sales reaching $1.17 billion, marking a 10% rise from the previous year. This growth was primarily driven by an uptick in power outage activity following Hurricanes Helen and Milton, resulting in a 28% surge in residential product sales. Despite a decline in global commercial and industrial product sales, Generac revised its 2024 outlook upwards, expecting substantial growth in residential sales and improved gross and adjusted EBITDA margins.
TD (TSX:TD) Cowen affirmed its positive stance on Generac, raising the company's price target from $172.00 to $183.00 while maintaining a Buy rating. This follows Generac's robust financial quarter, propelled by heightened demand attributed to adverse weather conditions. The company also received a $50 million grant from the Department of Energy to implement microgrid solutions in California.
These are developments that have recently affected Generac. Analysts from TD Cowen project an increase in residential product sales in the high teens percentage, and an improvement in gross margins and adjusted EBITDA margins for the full year. Despite facing a slow market in Europe, Generac has seen signs of improvement in Latin America and the Middle East, which are expected to contribute to the company's growth in the long term.
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