(NYSE:GNRC) | Seeking Alpha

Generac Holdings (NYSE:GNRC) on Friday was downgraded to Neutral from an investment rating of Buy by analysts at Guggenheim Securities. They said the maker of backup generators and solar equipment is fairly valued after a recent rally.

“The company is making progress in its efforts to improve installation delays and bring its dealer inventory under control,” Joseph Osha, analyst at Guggenheim, said in February 3 report. “We would expect demand growth to normalize at a reasonable level, albeit not as strong as what the company enjoyed during the pandemic.”

Generac’s (GNRC) sales of home-standby generators surged as many people spent more time at home after the onset of the health crisis and needed a stable source of electricity. More recently, the company has confronted a shortage of electricians and contractors to install generators, and dealer inventories have grown.

Guggenheim maintained its estimate of Generac’s (GNRC) revenue at $3.7 billion for 2023, which is less than the Visible Alpha consensus estimate of $4.2 billion.

“With the stock having risen from its low of $90 in December to $131 as of yesterday, we think Generac (GNRC) now looks reasonably valued” at 19 times next-12-month EBITDA, according to Guggenheim.

Questions for Generac Management

When Generac (GNRC) reports quarterly earnings on February 15, Guggenheim will be looking for more insights on the company’s energy technology business. Guggenheim discussed the division’s strategy in a recent meeting with Generac’s (GNRC) management.

A key question is whether Generac (GNRC) will consolidate the business to reduce costs and offer a more focused product lineup. Companies such as Enphase (ENPH) and SolarEdge (SEDG) generate higher revenue with such a strategy.

“The result may not be dramatically lower spending – Generac (GNRC) may choose to invest in its areas of focus – but perhaps better returns on the company’s investments,” according to Guggenheim.