GNRC Generac
Storm-cycle generator maker with a real data-center tailwind, but priced well above a still-cautious intrinsic value.
The story
Generac is the dominant U.S. residential/commercial standby generator brand, historically riding storm-driven demand cycles, now pivoting toward energy technology (batteries, grid services) and newly benefiting from a $1.6B data-center backup power backlog. The core business is mature and cyclical with margins under pressure from mix and input costs; the data-center opportunity is real but nascent and unproven at scale.
Trimmed target operating margin to 11% (from 12%) since margins fell to a 6.4% trough (TTM 7.1%) on cost/mix pressure, making a full return to the 12.3% peak less certain; nudged y1 growth to 7% and beta down slightly to 1.2 to reflect the data-center backlog adding a less storm-cyclical revenue stream, while keeping terminal growth, sales-to-capital, and failure probability unchanged as the core generator business dynamics haven't structurally changed.
Value drivers
| Revenue growth (Y1) | 7.0% |
| Terminal growth | 2.5% |
| Forecast horizon | 7y |
| Target operating margin | 11.0% |
| Years to target margin | 6 |
| Sales-to-capital | 1.10 |
| Beta | 1.20 |
| Failure probability | 4.0% |
| Cost of capital (WACC) | 9.7% |
| Terminal WACC | 8.9% |
Valuation bridge
| PV of explicit FCFF | 900.26M |
| PV of terminal value | 3.21B |
| Equity value | 3.07B |
| ÷ shares → per share | $52.18 |
News
bullish +0.65 · 8 articles
- Why Generac (GNRC) Could Be a Big Winner From the Data Center Boom
- How Generac's $1.6 Billion Data Center Backlog Changes Its Outlook
- What Makes Generac Holdings (GNRC) a New Strong Buy Stock
- Should You Buy Generac as Data Center Growth Tests Its Valuation?
- GNRC Drops 24% in the Past Month: Is the Sell-Off a Buying Chance?
- MarketBeat Week in Review – 07/27- 07/31
- Generac (GNRC) Stock Is Up, What You Need To Know
- Ingersoll Rand Beats Q2 Earnings Estimates, Raises Revenue Guidance
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 4.63B | 7.0% | 7.7% | 290.15M | 275.32M | 14.84M | 13.52M |
| 2 | 4.92B | 6.2% | 8.4% | 334.34M | 263.02M | 71.32M | 59.24M |
| 3 | 5.19B | 5.5% | 9.0% | 380.22M | 245.93M | 134.29M | 101.67M |
| 4 | 5.44B | 4.8% | 9.7% | 427.07M | 224.07M | 203.00M | 140.07M |
| 5 | 5.65B | 4.0% | 10.3% | 474.10M | 197.66M | 276.44M | 173.85M |
| 6 | 5.84B | 3.2% | 11.0% | 520.42M | 167.02M | 353.40M | 202.56M |
| 7 | 5.98B | 2.5% | 11.0% | 533.43M | 132.65M | 400.78M | 209.36M |
Key risks
- Storm-driven demand volatility could keep revenue and margins choppy regardless of data-center upside
- Data-center backlog conversion to sustained, profitable recurring revenue is unproven
- Margin recovery to historical norms may not materialize if input costs or competitive pricing persist
Catalysts
- Data-center backup power orders converting from backlog to recognized, margin-accretive revenue
- Severe weather/storm activity reaccelerating core generator demand