By Sam Boughedda
Northland Capital Markets analysts selected Generac Holdings (NYSE:GNRC) as a 'Top Pick' for 2023, maintaining an Outperform rating and a $180 per share price target on the stock.
The analysts told investors in a note that they believe the market is overlooking recent outage events that should drive home standby (HSB) and is instead distracted by the near-term installation bottlenecks that obscure the underlying reality.
"With Hurricane Ian hitting Florida in the last week of Q3 (causing >2.5M outages at its peak), a 6.4 magnitude earthquake causing CA to reach ~75k outages on 12/20/22, a terror attack on four substations in WA causing at least 66k outages at its peak on 12/26/22, a terror attack on two substations in NC leading to >40k outages in NC at its peak on 12/5/22, and >150k outages from a storm in OR as we speak. For context, the U.S. typically sees ~60k outages nationwide on a given day. As such, >40k outages in a single state is noteworthy, as in the case of the >40k in outages in NC from the terror attacks, let alone the >2.5M in Florida from Hurricane Ian," explained the analysts.
They believe all of the outages should help continue driving end-user demand for Generac, even as COVID-driven demand fades and as the company works through its near-term labor/installation challenges.
"We believe the market is not factoring in the latent impact of these recent and ongoing events on end-user demand given the stock's current valuation levels," writes the analysts. "And let's not forget that HSB is just one half of the business. The other business verticals, including stationary C&I generators, mobile generators, portable generators, chore products, and clean energy are all seeing major policy tailwinds and counter-cyclical dynamics that should help the stock in the event of a recession."