Why Generac Holdings, Inc. Might Pull Back in 2014

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Generac Holdings (NYSE: GNRC  ) sank 4% this morning after Oppenheimer downgraded the generator manufacturer from outperform to perform.

So what: Along with the downgrade, analyst Christopher Glynn reiterated his price target of $57, representing just 3% worth of upside to yesterday's close. While momentum traders might be attracted to Generac's strong share price, Glynn believes that Mr. Market isn't discounting enough of the key risks that the company will likely face in 2014.

Now what: According to Oppenheimer, Generac's risk and reward trade-off isn't too attractive at this point. "We believe our 2014E EPS of $3.40 potentially deals heavily with C&I organic growth comparisons and likely lower mix of higher margin residential standby products, but view $3.80 consensus as a high hurdle," noted Glynn. "2013E revenues have roughly doubled organically vs. 2010, resulting in difficult, but well-understood comparisons (our 2014E revenues are roughly in line)." Of course, when you couple Generac's strong operating momentum with its forward P/E of only 14, I wouldn't be so quick to unload too much, either.

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