Is Generac stock a buy?

Following the company’s first quarter results, Roth MKM analyst Chip Moore remains neutral on Generac Holdings (Generac Holdings Stock Quote, Chart, News, Analysts, Financials NYSE:GNRC).

On May 1, GNRC reported its Q1, 2024 results. The company posted Adjusted EBITDA of $127-million on Net Sales of $889-million.

“First quarter results exceeded our expectations due to strong operating margins and execution,” said CEO Aaron Jagdfeld. “Home standby generator shipments increased at a strong rate during the quarter from a softer prior year period, as field inventory continued to decline to more normalized levels. Additionally, we generated significant free cash flow during the quarter which further strengthens our confidence in executing our ‘Powering A Smarter World’ enterprise strategy. “Power security concerns have never been more apparent as the electrification of everything, deployment of energy intensive data centers, and rising long-term trend of severe weather events pressure an aging electrical grid that is increasingly reliant on intermittent renewable power generation. We believe Generac’s products and solutions are uniquely positioned to help homes and businesses solve the challenges that will result from this accelerating energy transition.”

The analyst says this is a good company with a stock that is close to fully valued.

“We continue to look for better visibility on C&I demand and the new clean energy portfolio to get more constructive post Q1 results,” he said. “Generac is a dominant category leader in back-up power, well positioned for a number of long-term secular drivers, in our view. Management has leveraged consistent cash generation from the core engine-powered portfolio to expand into adjacent markets, including higher-growth segments of energy tech (energy storage, smart home, software, etc.). We like the strategy and potential, although find risk/reward balanced at current levels.”

In a research update to clients May 1, Moore maintained his “Neutral” rating and price target of $135.00 on Generac.

The analyst thinks GNRC will post EPS of $6.28 per shares of revenue of $4.19-billion in fiscal 2024. He expects those numbers will improve toEPS of $8.02 per share on a topline of $4.62-billion in fiscal 2025.

“Our 12-month price target of $135 (unchanged) equates to an EV/EBITDA multiple of ~11x our 2025 estimate. We find the current valuation reasonable given more challenging late cycle C&I dynamics, while we await better visibility on C&I demand and the new clean energy portfolio (related investment diluting EBITDA margins by 350-400bps this year) to get more constructive,” Moore added.