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Is GNRC Worth Buying as Data Center Growth Tests Margins and Risk?
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Key Takeaways
Generac's $4.5B data center backlog supports growth, with C&I revenues potentially doubling in 2027.
GNRC trades at 14.6X forward earnings, below industry, but other valuation metrics are mixed.
Generac expects Q4 gross margin to fall to 37-38% sequentially.
Generac Holdings Inc. (GNRC - Free Report) has a powerful growth setup built around data centers, recovering residential demand and faster earnings growth. The investment case now turns on whether that growth can outweigh margin pressure and a demanding production ramp.
Generac Holdings Inc. Price, Consensus and EPS Surprise
Valuation offers some support, but the stock is not uniformly cheap. Investors also need to account for supply constraints and the capital required to convert a large backlog into revenue.
GNRC’s Data Center Growth Strengthens the Bull Case
Commercial & Industrial revenues rose about 28% year over year to $553 million in the third quarter of 2026. Management sees a path to roughly doubling segment revenues in 2027 as data center, rental and industrial distributor demand expands.
Data center backlog reached about $4.5 billion, while nearly $600 million of non-hyperscale orders broadened the customer base. Cummins Inc. (CMI - Free Report) is also expanding its data center power business, including generator and battery-storage projects, reinforcing the depth of demand across the power infrastructure market.
Generac’s Valuation Offers Some Room for Upside
GNRC trades at 14.6X forward 12-month earnings, below the Zacks sub-industry’s 20.8X and its own five-year median of 18.9X. That discount provides valuation support if earnings growth continues.
Image Source: Zacks Investment Research
The picture is less compelling on other measures. GNRC’s enterprise value-to-EBITDA multiple is 25.7X and its price-to-cash-flow multiple is 19.4X, making the valuation case more balanced than the forward earnings multiple alone suggests.
GNRC’s Revenue Mix Could Weigh on Profitability
Generac’s consolidated gross margin reached 39.9% in the third quarter, up from 38.3% a year earlier. Faster C&I growth nevertheless created an unfavorable mix effect.
Management expects fourth-quarter gross margin to fall sequentially to 37-38% as data center sales become a larger portion of revenue and inflationary pressures persist. That trade-off matters because the fastest-growing business currently carries lower profitability than the residential segment.
Generac’s Capacity Build Raises the Execution Bar
Initial production at the Sussex, WI, facility began near the end of the third quarter, with a substantial ramp planned for the fourth quarter. The Belvidere, IL, packaging facility is expected to become operational in early 2027.
The added capacity can support backlog conversion, but tight high-horsepower diesel engine supply, production inefficiencies and cost overruns remain risks. Eaton Corporation plc (ETN - Free Report) is also adding data center-related manufacturing capacity, showing that industry growth is being matched by a broad capital buildout.
GNRC’s Style Profile Favors Selective Optimism
Generac combines unusually strong data center visibility with a recovering residential business, but the margin and execution risks make selectivity important. The stock’s earnings multiple is attractive relative to key benchmarks, though the broader valuation picture is mixed.
GNRC currently carries a Zacks Rank #2 (Buy). It also has a Growth Score of B, Momentum Score of A and VGM Score of B, a combination that supports favorable near-term growth and momentum characteristics.
The Value Score of C tempers that signal. Investors have some valuation support, but the stock is not uniformly inexpensive across measures. The current profile therefore favors a constructive stance while keeping production execution and margin conversion in focus.
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Image: Bigstock
Is GNRC Worth Buying as Data Center Growth Tests Margins and Risk?
Key Takeaways
Generac Holdings Inc. (GNRC - Free Report) has a powerful growth setup built around data centers, recovering residential demand and faster earnings growth. The investment case now turns on whether that growth can outweigh margin pressure and a demanding production ramp.
Generac Holdings Inc. Price, Consensus and EPS Surprise
Generac Holdings Inc. price-consensus-eps-surprise-chart | Generac Holdings Inc. Quote
Valuation offers some support, but the stock is not uniformly cheap. Investors also need to account for supply constraints and the capital required to convert a large backlog into revenue.
GNRC’s Data Center Growth Strengthens the Bull Case
Commercial & Industrial revenues rose about 28% year over year to $553 million in the third quarter of 2026. Management sees a path to roughly doubling segment revenues in 2027 as data center, rental and industrial distributor demand expands.
Generac Holdings Inc. Revenue (Quarterly)
Generac Holdings Inc. revenue-quarterly | Generac Holdings Inc. Quote
Data center backlog reached about $4.5 billion, while nearly $600 million of non-hyperscale orders broadened the customer base. Cummins Inc. (CMI - Free Report) is also expanding its data center power business, including generator and battery-storage projects, reinforcing the depth of demand across the power infrastructure market.
Generac’s Valuation Offers Some Room for Upside
GNRC trades at 14.6X forward 12-month earnings, below the Zacks sub-industry’s 20.8X and its own five-year median of 18.9X. That discount provides valuation support if earnings growth continues.
Image Source: Zacks Investment Research
The picture is less compelling on other measures. GNRC’s enterprise value-to-EBITDA multiple is 25.7X and its price-to-cash-flow multiple is 19.4X, making the valuation case more balanced than the forward earnings multiple alone suggests.
GNRC’s Revenue Mix Could Weigh on Profitability
Generac’s consolidated gross margin reached 39.9% in the third quarter, up from 38.3% a year earlier. Faster C&I growth nevertheless created an unfavorable mix effect.
Management expects fourth-quarter gross margin to fall sequentially to 37-38% as data center sales become a larger portion of revenue and inflationary pressures persist. That trade-off matters because the fastest-growing business currently carries lower profitability than the residential segment.
Generac’s Capacity Build Raises the Execution Bar
Initial production at the Sussex, WI, facility began near the end of the third quarter, with a substantial ramp planned for the fourth quarter. The Belvidere, IL, packaging facility is expected to become operational in early 2027.
The added capacity can support backlog conversion, but tight high-horsepower diesel engine supply, production inefficiencies and cost overruns remain risks. Eaton Corporation plc (ETN - Free Report) is also adding data center-related manufacturing capacity, showing that industry growth is being matched by a broad capital buildout.
GNRC’s Style Profile Favors Selective Optimism
Generac combines unusually strong data center visibility with a recovering residential business, but the margin and execution risks make selectivity important. The stock’s earnings multiple is attractive relative to key benchmarks, though the broader valuation picture is mixed.
GNRC currently carries a Zacks Rank #2 (Buy). It also has a Growth Score of B, Momentum Score of A and VGM Score of B, a combination that supports favorable near-term growth and momentum characteristics.
The Value Score of C tempers that signal. Investors have some valuation support, but the stock is not uniformly inexpensive across measures. The current profile therefore favors a constructive stance while keeping production execution and margin conversion in focus.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.