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Will Generac's (GNRC) Growth Momentum Continue in 2021?

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Shares of Generac Holdings Inc. (GNRC - Free Report) have surged 131.6% year to date driven by accretive customer base and healthy revenues on the back of a flexible business model. Earnings estimates for the current and next fiscal year have increased 49.2% and 44.6%, respectively, since May end, implying robust inherent growth potential. With solid fundamentals and inherent growth potential, this Zacks Rank #2 (Buy) power generation equipment manufacturer’s winning streak is likely to continue in 2021. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Growth Drivers

With more than six decades of industry experience and technology knowhow, Generac is one of the leading manufacturers of home backup generators, offering the widest range of power products in the marketplace for diversified end users. The company intends to leverage its experience and core competencies to strengthen its position in the emerging residential energy storage and monitoring markets. While its Mobile Link remote monitoring capability offers a Wi-Fi-enabled feature to conveniently check the status of a generator online and receive maintenance and service alerts, the “Fleet” feature enables its distribution partners to monitor the installed base of customers for a more proactive service experience. Such a comprehensive product portfolio and service capabilities augur well for the long-term growth of the company.

Significant changes in the energy landscape, drastic climate change, abundance of natural gas, aging power infrastructure and deployment of superfast 5G technology are likely to spur secular growth opportunities for Generac. The company aims to capitalize on these key growth drivers by generating more sales through higher market penetration and continued focus on research and development. A diversified distribution channel further ensures that the products reach a broad global customer base. Notably, the company has the largest network of factory direct independent generator dealers in the industry in North America.

Generac intends to diversify its business model from being solely ‘‘equipment centric’’ to a systems and services provider through connectivity solutions and subscription-based applications, with emphasis on improving the end-user experience and helping customers lower utility costs. This, in turn, is likely to help unlock new business opportunities and generate steady revenues from subscriptions and spare parts. The company leverages data obtained from connected devices by developing predictive analytics that helps in continuously improving product quality, sales processes and tools, energy optimization, aftermarket penetration, customer experience and alignment with dealers. In addition, the company pursues potential acquisition opportunities to monetize an ecosystem of devices that relate to energy use, storage, generation, control and optimization to further strengthen its leading market position. This holistic growth strategy offers a competitive advantage to Generac against other firms.

In addition, Generac’s products are well suited to accelerate the transition from traditional fossil fuel to clean environment-friendly natural gas. The emergence of low cost, environment-friendly natural gas generators have helped to increase the penetration of standby generators over the past decade in the light commercial market. Moreover, low and stable natural gas prices offer an enticing opportunity to end users to reduce utility bills by using renewable energy solutions. An aging population and increased cases of power outages due to inclement weather conditions and catastrophic events like wildfires have amplified the importance of backup power for critical infrastructure facilities. In addition, large installed base of backup power for essential telecommunications infrastructure for the rollout of next-generation 5G wireless networks has enabled the uninterrupted flow of critical communications and other voice and data services.

The stock delivered a positive earnings surprise of 24.9%, on average, in the trailing four quarters, beating estimates on each occasion. With long-term earnings growth expectation of 6.5%, this stock has enough firepower to hold its ground in the next year.

Other Key Picks

Some other top-ranked stocks in the broader industry are Aviat Networks, Inc. (AVNW - Free Report) , Comtech Telecommunications Corp. (CMTL - Free Report) and Ubiquiti Inc. (UI - Free Report) , each sporting a Zacks Rank #1.

Aviat delivered a positive earnings surprise of 11.8%, on average, in the trailing four quarters.

Comtech delivered a positive earnings surprise of 2%, on average, in the trailing four quarters.

Ubiquiti has a long-term earnings growth expectation of 18.4%. It delivered a positive earnings surprise of 27.9%, on average, in the trailing four quarters.

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