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Bear of the Day: Generac Holdings (GNRC)

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Generac Holdings (GNRC - Free Report) is a Zacks Rank #5 (Strong Sell) following an earnings miss back in the start of November.  The stock was trading just over $500 before the print, but it has tumbled down to the $360 level.  Let’s take a deeper look at this stock in this Bear of the Day article.

Description

Generac Holdings Inc. designs, manufactures, and sells power generation equipment, energy storage systems, and other power products for the residential, and light commercial and industrial markets worldwide. The company offers engines, alternators, transfer switches, and other components fueled by natural gas, liquid propane, gasoline, diesel, and bi-fuel; and batteries and inverters. It also provides residential automatic standby generators ranging in output from 7.5kW to 150kW.

Earnings History

When I look at a stock, the first thing I do is look to see if the company is beating the number.  This tells me right away where the market’s expectations have been for the company and how management has communicated to the market.  A stock that consistently beats has management communicating expectations to Wall Street that can be achieved.  That is what you want to see.

In the case of GNRC, I see three beats and one miss of the Zacks Consensus Estimate over the last year.  This alone does not make the stock a Zacks Rank #1 (Strong Buy) and it doesn’t make it a Zacks Rank #5 (Strong Sell) either.

The Zacks Rank does care about the earnings history, but it is much more heavily influenced by the movement of earnings estimates.

Earnings Estimates

The Zacks Rank tells us which stocks are seeing earnings estimates move higher or in this case lower.  For GNRC I see estimates moving lower.

This quarter has fallen from $3.01 to $2.40.

Next quarter dropped from $3.14  to $2.51.

The Zacks Rank is more heavily influenced by the move in the annual numbers, and the movement is mixed for those numbers.

The current year 2021 consensus number has dropped 52 cents to $9.54

The next year has dropped from $12.29 to $11.73 over the last 60 days.

Negative movement in earnings estimates like that is why this stock is a Zacks Rank #5 (Strong Sell).

It should be noted that a majority of stocks in the Zacks universe are seeing positive earnings estimate revisions.  That means that the stocks that are seeing small but negative earnings estimate revisions are falling to a Zacks Rank #5 (Strong Sell).

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