Sunday Nov 27, 2022

Generac Stock: Invest In The Energy Ecosystem (NYSE:GNRC) – Seeking Alpha

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J. Michael Jones

Thesis

Providing a smarter ecosystem for home energy independence is an extremely powerful idea and Generac (NYSE:GNRC) is well positioned to continue moving into that space. Capitalizing on themes like energy independence, smart energy management, and contingency planning will create synergistic effects and drive growth. The unquestionable risk is that their estimated revenue growth may be unsustainable or misrepresented given the probability of a recession and economic friction. I value Generac currently at $212.13 given a mix of analyst revenue estimates, historical data, and a margin of safety to compensate for uncertainty.

Energy Technology Potential

Generac has a strong brand and is well established for their generator products. They are the market leader with approximately 70% market share in home standby generators according to Morningstar analysts. Generac also boasts strong omni-channel distribution networks, stable and low capital expenditures, strong marketing compared to competitors, and a breadth of products and services that help maintain their competitive nature in the generator space.

Generac has made a strategic pivot in recent years into becoming an energy technology company. This newest strategic development aligns well with macro-trends relating to energy themes such as energy independence, optimization, and infrastructure. Residential revenue accounts for approximately 66% of Generac’s net sales over the past twelve months of which 85% of that was domestic. Residential electricity was the largest electricity consumption sector in the United States in 2020 according to Statista (Figure 1). Generac is already well positioned as a market leader for residential electricity contingency products and is positioning well to integrate its offerings into the everyday electricity market which is an essential service for function in today’s world.

Figure 1. Electricity consumption in the U.S. 2020 (Statista)

The utilization of solar technology has been increasing substantially and the primary consumption of solar energy across the U.S. between 2006 and 2020 has grown at a CAGR of 24.05% (Figure 2). This trend represents a large growing market for Generac to continue to integrate its products and services which may stimulate future firm growth.

Figure 2. Primary consumption of solar energy in the U.S. 2006-2020 (Statista)

Generac is refocusing on targeting synergistic markets that align well with growing energy technology trends and integrating themselves into an energy ecosystem. Their products and services offerings are more encompassing than they were historically by providing hardware, customer service, and software to consumers (Figure 3). Generac has also been acquiring businesses at a high rate to help align their services with their strategic goals. This could enable them to create a competitive advantage by synergistically offering products and services in the growing market.

Figure 3. Generac energy ecosystem (Generac investor presentation)

There is currently a large untapped market for the home standby generator (HSB) ecosystem. Generac is already well defined as the market leader in this space and their current estimates of home standby generators U.S penetration is approximately 5.5% (Figure 4). There is currently large penetration in the New England area and Northern states along with more hurricane prone areas in the Southeast. This visual represents ample room for growth of home standby generators and domestic areas that would be optimal for synergistic products like …….

Source: https://seekingalpha.com/article/4522672-generac-stock-invest-in-the-energy-ecosystem-but-be-wary-of-the-risks

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