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Investing.com -- Shares of Generac Holdings (NYSE:GNRC) climbed 3.8% today after BofA Securities analyst Dimple Gosai reinstated coverage of the company with a Buy rating and a price target of $182. Generac, known for its backup power generation products, is anticipated to benefit from the increasing demand for reliable power sources due to deteriorating grid reliability and more frequent severe weather events.
Gosai highlighted that with an average of 23 billion-dollar weather incidents occurring annually, nearly double that of the previous decade, states with significant market potential for Generac like Texas, Florida, and California remain underpenetrated, comprising about 25% of the company’s total addressable market. As inventory channels have normalized, Gosai views this as an attractive entry point for investors.
The aging population, expected to reach 82 million by 2030, is also seen as a driver for demand, with older adults increasingly recognizing the importance of backup power for medical devices and refrigerated medications. Generac’s appeal is expanding beyond this demographic to include Generation X and older Millennials who consider backup power crucial for home security, weather resilience, and remote work capabilities.
Additionally, Generac’s advancements in smart home energy technology, particularly through Ecobee, are expected to contribute to growth. Ecobee’s installed base has doubled to 4.25 million since 2022, and is projected to generate about $200 million in revenue by 2024 while capturing more of the smart thermostat market. This is set to bolster the launch of new storage and microinverter products planned for 2025.
Despite previous setbacks with its PWRcell product, Gosai forecasts a 25% compound annual growth rate in energy tech revenue, with Ecobee and new residential storage/microinverters expected to lead the charge. The Resi Energy Tech segment is projected to reach EBITDA breakeven by 2027, and the overall energy tech segment, including upcoming data center launches in 2025, is valued at $1.2 billion, reinforcing Gosai’s above-consensus estimates.
Currently, Generac’s shares are trading at 10 times the 2-year forward EV/EBITDA, which aligns with its historical average and offers a discount compared to its peers. Gosai believes that despite the valuation reset, the opportunity for Generac is greater now than before 2020. The analyst’s $182 price target is derived from a combination of discounted cash flow and sum-of-the-parts valuation methods.
In Gosai’s words, "As a leading manufacturer of backup power, GNRC (75% market share) is well positioned to benefit from worsening grid reliability and increasingly severe weather disasters. Billion-dollar weather events now average 23/yr - nearly 2x more than in the 2010s - yet key states like TX, FL and CA remain underpenetrated (~25% of GNRC’s TAM). With inventory channels now normal, an overlooked smart distributed energy opportunity, and attractive valuation, we see a compelling entry point here."
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