BY MARK SEBASTIAN 

August 24, 2023 

Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

Two winters ago, Texas had a major snow storm.

The snowstorm shut down water for much of Austin.

It also killed power for half the city.

While I was spared a power outage, I ended up having about 14 people at my house that were without power.

My friends that lost power from the grid and did NOT have to come live with me for days had one of two situations.

Some had solar batteries, but most had a generator.

Today we are going to look at one of the biggest suppliers of generators in the United States: Generac Holdings Inc (Ticker: GRNC).

The Good

I have actually had the opportunity to chat with the CEO of Generac. He’s a smart dude that knows the product, the industry, and how to run a company.

But personal feelings aside, what are the positives here?

Let’s start with the business model.

The US has neglected its power grid infrastructure for years– it’s in bad shape.

And with the dawn of electric cars, there’s more stress on the grid than ever.

The company makes a ton of money, producing positive cash flows of 5.58 a share and carrying an EPS of 2.39 over the last 12 months.

The company is carrying a relatively low debt load at about 1.5 billion dollars. With equity in the company worth 7 billion, that’s a beyond reasonable debt load.

Generac produced 4 billion in revenue, almost half the value of the company. With low debt,  that puts the company in a position to produce cash.

The Bad

While the company makes money,  the PE is still 47.5. This is high for a nuts and bolts company.

The dollars made relative to the revenue seems low. The company had 4 billion dollars in revenue and netted only 152 million dollars

That tells me this is a low margin business.

So why does GRNC, a clearly low margin business, have such a high PE?

The answer … is fear.

The power grid is being tested so hard by EVs it’s actually causing problems in some states.

The Verdict

Generac has gotten thwacked in the late year.

With the US power grid in shambles, I think this is an interesting stock.

I would be a put seller at the 100 strike with the intent to own.

Long term, I think GNRC goes to 200.

It’s a buy.

Questions about that? Leave a comment below!

Your Only Option,

Mark Sebastian