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Generac (GNRC) Poised to Benefit From Evolving Energy Landscape

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Generac Holdings Inc. GNRC has been in the limelight of late driven by accretive customer base and a flexible business model amid an evolving energy ecosystem. Record revenues, solid demand environment and elevated shipments on the back of a robust liquidity position are likely to boost its growth momentum in 2021.

Growth Drivers

Significant changes in the energy landscape, drastic climate change, abundance of natural gas, aging power infrastructure and deployment of superfast 5G technology are likely to spur secular growth opportunities for Generac. The company aims to capitalize on these key growth drivers by generating more sales through higher market penetration and continued focus on research and development in order to foster innovation. A diversified distribution channel further ensures that the products reach a broad global customer base. Notably, the company has the largest network of factory direct independent generator dealers in the industry in North America.

With more than six decades of industry experience and technology knowhow, Generac is one of the leading manufacturers of home backup generators, offering the widest range of power products in the marketplace for diversified end users. Moreover, the company intends to leverage its experience and core competencies to strengthen its position in the emerging residential energy storage and monitoring markets. While its Mobile Link remote monitoring capability offers a Wi-Fi-enabled feature to conveniently check the status of a generator online and receive maintenance and service alerts, the “Fleet” feature enables its distribution partners to monitor the installed base of customers for a more proactive service experience. Such a comprehensive product portfolio and service capabilities augur well for the company that competes with Caterpillar Inc. CAT, Cummins Inc. CMI and Terex Corporation TEX.

Generac intends to diversify its business model from being solely ‘‘equipment centric’’ to a systems and services provider through connectivity solutions and subscription-based applications, with emphasis on improving the end-user experience and helping customers lower utility costs. This, in turn, is likely to help unlock new business opportunities and generate steady revenues from subscriptions and spare parts. The company leverages data obtained from connected devices by developing predictive analytics that helps in continuously improving product quality, sales processes and tools, energy optimization, aftermarket penetration, customer experience and alignment with dealers. In addition, the company pursues potential acquisition opportunities to monetize an ecosystem of devices that relate to energy use, storage, generation, control and optimization to further strengthen its leading market position. This holistic growth strategy offers a competitive advantage to Generac against other firms.

In addition, Generac’s products are well suited to accelerate the transition from traditional fossil fuel to clean environment-friendly natural gas. The emergence of low cost, environment-friendly natural gas generators have helped to increase the penetration of standby generators over the past decade in the light commercial market. Moreover, low and stable natural gas prices offer an enticing opportunity to end users to reduce utility bills by using renewable energy solutions. An aging population and increased cases of power outages due to inclement weather conditions and catastrophic events like wildfires have amplified the importance of backup power for critical infrastructure facilities. In addition, large installed base of backup power for essential telecommunications infrastructure for the rollout of next-generation 5G wireless networks has enabled the uninterrupted flow of critical communications and other voice and data services.

The stock delivered an earnings surprise of 26.1%, on average, in the trailing four quarters, beating estimates on each occasion. With long-term earnings growth expectation of 6.5%, this stock appears to be an enticing investment option in the volatile market.

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