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Generac (GNRC) Rises 30.8% in a Year: Will the Rally Continue?

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Generac Holdings Inc. (GNRC - Free Report) is continuing its upward trajectory, with a gain of 30.8% in the past year compared with the S&P 500 composite’s growth of 29.1%. The sub-industry has declined 24.2% over the same time frame. 

Headquartered in Waukesha, WI, Generac is a leading manufacturer of backup and prime power generation systems for residential and C&I applications, solar and battery storage solutions, advanced power grid software platforms and services, energy management devices and controls, and engine and battery-powered tools and equipment.

Improving financial performance has been driving a good run on the trading front. The stock has gained 11.7% since announcing first-quarter 2024 results on May 1.

The stock is still trading 3.3% below its 52-week high of $156.95, reflecting further upside potential cushioned by an improving business performance.

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Factors Fueling Growth

Generac’s performance is being cushioned by improving C&I shipments, favorable input costs, and solid operational execution. 

Higher shipments of home standby generators are benefiting the Residential Products segment’s top line. GNRC expects the removal of the excess field inventory to drive strong year-over-year growth in home standby generator sales.

The company has strong traction in Residential Energy Technology Products and Solutions, especially ecobee. Although the retail environment was tough in the first quarter of 2024, Ecobee sales witnessed year-over-year growth owing to healthy relations with professional contractors.

The proliferation of artificial intelligence applications has caused a spurt in the construction of energy-intensive data centers. This is likely to spur demand for power consumption/backup power in the near future, which is expected to put pressure on the aging power grids. Generac's backup power portfolio is well suited to provide a resilient power supply as demand for electricity continues to surge. Next-generation energy technology solutions across residential and C&I product categories are likely to boost resiliency through improved cost-effectiveness and higher comfort.

Also, the strategic alliance with Wallbox is likely to generate lucrative returns in the upcoming quarters. Residential dealers increased to roughly 8,800 at the end of the first quarter.

Management reiterated its sales expectations for 2024. The company expects revenues to increase in the range of 3-7% for 2024.

Owing to higher shipments of C&I generators through the North American distributor channel, C&I product sales are now expected to decline in the mid-to-high single-digit rate compared with the 10% decline guided earlier.

However, due to lower expectations for portable generator shipments, softness in domestic energy storage and EV markets will weigh on residential product sales. The segment’s sales are now projected to grow in the low double-digit range compared with the prior forecast of the mid-teens growth rate.

At present, GNRC carries a Zacks Rank #3 (Hold).

Estimate Revision Activity

The Zacks Consensus Estimate for GNRC’s 2024 and 2025 revenues is pegged at $4.19 billion and $4.59 billion, indicating growth of 4.1% and 9.6% from the year-ago levels, respectively.

The consensus estimate for 2024 and 2025 EPS is expected to rise 12.6% and 30.6% from the prior-year actuals to $6.08 and $7.94, respectively.

The long-term earnings growth rate is 12%.

Stocks to Consider

Better-ranked stocks worth consideration in the broader technology space are Badger Meter (BMI - Free Report) , Oracle (ORCL - Free Report) and The Descartes Systems Group Inc (DSGX - Free Report) . While BMI sports a Zacks Rank #1 (Strong Buy), ORCL and DSGX carry a Zacks Rank of 2 (Buy) each, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BMI’s 2024 EPS is pegged at $3.89, up 9.9% in the past 60 days. BMI’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 12.7%. The long-term earnings growth rate is 15.6%. Shares of BMI have risen 44.1% in the past year.

The Zacks Consensus Estimate for ORCL’s fiscal 2025 EPS is pegged at $6.15. The long-term earnings growth rate is 9.7%. Oracle’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 3.6%. Shares of ORCL have risen 26.8% in the past year.

The Zacks Consensus Estimate for Descartes’ fiscal 2025 EPS has increased 1.2% in the past 60 days to $1.69. Descartes’ earnings beat the Zacks Consensus Estimate in two of the last four quarters, while missing in the remaining two quarters, the average surprise being 5.1%. Shares of DSGX have risen 32.3% in the past year.

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