Is Generac overvalued?

Roth Capital Partners analyst Chip Moore maintained his “Neutral” rating and US$250.00 target on Generac Holdings (Generac Holdings Stock Quote, Chart, News, Analysts, Financials NYSE:GNRC) ahead of its third-quarter results, citing weaker residential demand but improving commercial and industrial markets and a growing data centre opportunity.

In an Oct. 23 preview, Moore said Generac’s valuation has become more attractive, with shares trading at approximately 10 times estimated fiscal 2027 Adjusted EBITDA. “We continue to view Generac as a dominant category leader in backup power and well positioned for long-term secular drivers,” Moore said.

The analyst pointed out that the company has used cash generated by its traditional generator business to expand into higher-growth energy technology markets.

Generac is scheduled to report Q3 results before markets open Oct. 28.

Moore forecasts revenue of US$1.32-billion and adjusted EPS of US$2.42, broadly in line with consensus estimates of US$1.33-billion and US$2.43.

“We continue to anticipate that Residential demand will be softer overall, with our recent checks suggesting that subdued outage activity and inflationary pressures are impacting consumers,” he said.

However, Moore expects commercial and industrial demand to strengthen, supported by data centre investment and improving conditions in telecommunications and equipment rentals.

He said Generac’s September supply agreement with Amazon is a major development. “While a second hyperscaler win had previously been discussed, we believe the total potential size of the agreement was larger than many investors had likely anticipated,” Moore said.

The agreement calls for approximately US$2.4-billion in initial generator deliveries during 2027 and 2028, significantly exceeding management’s earlier indication of a potential contract worth more than US$700-million. Shipments are expected to begin in late Q2 2027, with approximately one-third delivered that year and the remainder in 2028. As part of the agreement, Amazon received warrants to acquire up to approximately 1.7 million Generac shares at an exercise price of US$200.93.

Most of the warrants vest based on future purchases, with potential dilution of approximately 2.5% over seven years.

Moore said pricing and product mix details remain uncertain, although management does not expect the agreement to dilute commercial and industrial margins.

The company’s data centre backlog reached approximately US$1.6-billion at the end of Q2, increasing by US$1-billion in just three months. Moore expects the Amazon agreement to lift that backlog toward US$4-billion in Q3, extending revenue visibility into 2028.

Generac is expanding manufacturing capacity to meet demand, including a new facility in Sussex, Wisconsin, expected to be completed ahead of schedule.

The company plans to increase potential data centre equipment output to approximately US$3.75-billion annually by late 2027, compared with current capacity of roughly US$1.2-billion.

Moore noted that Generac’s March investor-day outlook called for fiscal 2028 revenue of US$6.2-billion to US$6.6-billion and Adjusted EBITDA of US$1.25-billion to US$1.45-billion. That forecast included approximately US$1-billion in data centre revenue, a figure Moore believes could be exceeded following the company’s recent hyperscaler agreements.

The analyst said Generac is also expanding its product offering, including generators with capacities of up to 4.25 megawatts, to address growing demand from larger data centres.

Despite the opportunity, Moore maintained his “Neutral” rating, noting that near-term share performance could remain heavily influenced by investor sentiment toward AI infrastructure spending. “We see the potential for upside with execution around the opportunity,” he said.

Moore’s US$250.00 target is based on approximately 13 times estimated fiscal 2027 EV/Adjusted EBITDA and 10.3 times fiscal 2028.

He expects Generac to generate Adjusted EBITDA of US$1.00-billion on revenue of US$4.94-billion in fiscal 2026, improving to Adjusted EBITDA of US$1.23-billion on revenue of US$6.25-billion in fiscal 2027.

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