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CAPScall of the Week: Generac Holdings

Sean Williams
September 4, 2012

For years, satirical late-night-TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. congressional districts and its representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.

That's why this week and every week from here on out, I'll make it a tradition to examine one seldom-followed company within the Motley Fool CAPS database and make a CAPScall of outperform or underperform on that company.

For this week's round of what I like to call "Better Know a Stock," I'd like to take a closer look at Generac Holdings (NYSE: GNRC  ) .

What Generac Holdings does
Generac Holdings is a manufacturer of standby generators for the residential, industrial, and commercial markets, and is also responsible for performing technical work on engines, alternators, and other related components. According to Generac's CEO, Aaron Jagdfeld, the company controls about 70% of the residential standby generator market.

In Generac's most recent quarter, the company announced a 48.2% increase in total sales and a 41.5% increase in adjusted EPS. Driving growth was a 33.8% jump in residential product sales and a 76.4% surge in commercial and industrial segment sales. The big jump in revenue from the commercial and industrial segment was due to its acquisition of Magnum Products, a manufacturer of light towers, in October for $80 million.

Whom it competes against
In spite of controlling a stranglehold on the standby generator market for homeowners, it faces stiff competition in the industrial and commercial sectors from companies with considerably deeper pockets and product offerings than Generac has.

Although commercial and industrial generators aren't the focus product for Caterpillar (NYSE: CAT  ) and Cummins (NYSE: CMI  ) -- who tend to focus on heavy-duty machinery and diesel engine production, respectively -- they nonetheless represent a challenge for Generac. Cat's offerings are particularly unique because they can be run off of oil, natural gas, or other alternative fuels, while Cummins' generator sales have benefited in recent weeks after multiple grid failures in India.

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