What happened
Backup power generation equipment manufacturer Generac Holdings (GNRC +1.70%) soared a remarkable 82.6% in the first half of 2021, according to data from S&P Global Market Intelligence. The move follows a remarkable 252% rise in the stock over the last year.
Just about everything is going right for the company right now. If it isn't the stay-at-home measures encouraging spending on the home (Generac generates 65% of its sales to residential customers), it's power outages in Texas leading to a pickup in demand for standby generators. In addition, California has suffered power shutoffs to guard against the risk of wildfires. Moreover, Generac is a beneficiary of the movement toward renewable energy due to its energy storage batteries.
Image source: Getty Images.
It all comes together to produce a robust outlook for 2021. On the first-quarter earnings call in April, management outlined expectations for revenue to grow by 40% to 45% in 2021, with residential products growing at a rate of over 50%. For reference, the previous guidance was for a 25% to 30% increase.
It's all driven by a better U.S. outlook as domestic sales increased 84.2% to $692.7 million in the first quarter, whereas international sales "only" grew 14.8% to $114.7 million.
So what
Generac has a bright future. The energy transition creates demand for energy storage, and the variable nature of renewable energy means backup generators have a crucial role to play.
That said, there's a feeling that a lot of the good news is already included in the price. For example, the company now trades on nearly 40 times its estimated 2022 earnings, and 44 times estimated 2021 earnings. Also, there's no guarantee that future inclement weather will produce the sort of power outages experienced this year.
Now what
As ever with richly rated stocks, the question is whether the company can keep surprising investors to the upside. The good news is you won't have to wait long to find out -- second-quarter earnings are due on July 28. Generac may well have to raise guidance again to keep investors happy. Still, any sell-off in the stock should be considered an opportunity to buy into a very attractive long-term story.
