The Motley Fool Previous Page

This Company Can Power Your Portfolio During the Darkest Times

Sean Williams
November 1, 2012

Shares of Generac Holdings (NYSE: GNRC  ) hit a 52-week high on Wednesday. Let's take a look at how it got there and see if clear skies are still in the forecast.

How it got here
What do you get when you mix a hurricane with a company that controls about 70% of the residential market share for standby generators? The answer: some very excited investors.

Not to make light of what is a very serious and tragic situation on the East Coast, Generac, along with home improvement stores like Home Depot (NYSE: HD  ) and Lowe's (NYSE: LOW  ) which sell everything needed to repair a damaged home or business, are likely to receive a sizable bottom-line boost to their profits related to hurricane Sandy. The rebuilding effort on the East Coast is bound to take months, and certain homes and businesses are relying on generators to handle their power generation over the next few days.

Natural disasters tend to have the short-term effect of making consumers more self-aware, and should have a positive impact of coercing them to purchase generators like never before over the next quarter or two.

Prior to hurricane Sandy, Generac was doing pretty darn well on its own. In its just-released third-quarter results, the company noted sales growth of 25.6% while cash flow advanced 14%. Some of its growth has come from acquisitions, but strong residential and commercial organic growth has been the real driver behind it raising its outlook for the remainder of the year. Also, the announcement of a $6 special dividend, financed through cash and debt, drew a lot of investors to the company beginning in the summer.

What could derail Generac
It's tough to imagine Generac running into any near-term problems, but it does have challenges to contend with that could derail its recent rally.

For one, investors often allow their emotions to get the better of them when natural disasters occur. Yesterday's 20% pop, for instance, was a nice treat for shareholders, but is possibly overdone, all things considered.

Competition is another concern as some larger companies are beginning to note the l