GENERAC HOLDINGS INC. (GNRC): what the price requires

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/GNRC

Headline

Field	Value
Ticker	GNRC
Company	GENERAC HOLDINGS INC.
Current price	$227.11/sh
Composition	Residential products 54% / Commercial & Industrial products 35% / Other 12%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Field	Value
Inversion basis	whole-company
Operating margin needed	13.7%
Operating margin today	10.0%
Margin expansion implied	+3.7pp
Must persist for	13.5y
Multiple paid	35x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 12.4% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2.3 years.

Reconcile: at the x-ray's 9.3% required return this reads ~7.2 years; the models below use their own rates.

How unusual the bet is: elevated

Reference	Value
vs own history	+0.42σ
cohort percentile (of 225 peers)	77
sustained it ~10 years at this level	15%
implied end-window share	0%

Valuation X-Ray

Every valuation family lands below the price. The price therefore requires assumptions beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Family	Median price/FV	Models	Reads
Asset	7.59x	5	expensive
Earnings	5.86x	4	expensive
Relative	1.92x	3	expensive
Growth	1.57x	3	expensive

Families that call it expensive: Asset, Earnings, Relative, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.6%); the inversion above states its own rate.

Per-Model Detail (n=15)

Model	Family	FV	Price/FV	Applicable	Methodology
DCF Perpetual Growth	Growth	$51.68	4.39x	yes	FCF base $0.3B, growth 1% (input: historical growth), terminal g 0.5%, WACC 8.6%, 5yr projection
DCF Exit Multiple	Growth	$175.19	1.30x	yes	Exit EV/EBITDA: 27.0x / 29.0x / 31.0x (bear / base = today's held flat / bull), 5yr
Relative Valuation	Relative	$118.07	1.92x	yes	P/E 33.96x (blended: static sector reference 18x + trailing (TTM) 71x), scenarios: 28.7x / 34.0x / 39.3x (bear / base = reference held flat / bull), EV/EBITDA 17.1x
Simple DDM	Growth	—	—	no	—
Two-Stage DDM	Growth	—	—	no	—
Simple Excess Return	Asset	$34.49	6.58x	yes	BV/sh $45.16, ROE (TTM) 7.1%, ke 9.3%
Two-Stage Excess Return	Asset	$29.92	7.59x	yes	5yr excess ROE then converge to ke=9.3%
Discounted Future Market Cap	Growth	$144.56	1.57x	yes	Rev $4.3B, growth 1% (input: historical growth; tapered), Terminal P/S: 2.6x / 3.1x / 3.6x (bear / base = today's held flat / bull, cap 8x)
Growth-Adjusted P/E	Relative	—	—	no	—
Margin Trajectory	Growth	—	—	no	—
Earnings Power Value	Earnings	$54.49	4.17x	yes	Normalized EBIT (5y avg op income, one-time charges added back) $0.49B × (1−24%) / WACC 8.6% → EPV (no growth)
Residual Income	Asset	$29.25	7.76x	yes	BV $45.16 + 5yr PV of (ROE (TTM) 7.1% − Kₑ 9.3%) × BV; BV grows 4.6%/yr
Graham Number	Asset	$57.02	3.98x	yes	√(22.5 × EPS $3.20 × BVPS $45.16) — Graham's conservative floor
EV/EBITDA Relative	Relative	$84.32	2.69x	yes	EBITDA $0.50B × sector EV/EBITDA 12.0x
FCF Yield	Earnings	$43.98	5.16x	yes	FCF $330.8M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF Yield	Earnings	$34.53	6.58x	yes	SBC-adj FCF $0.28B (FCF $0.33B − SBC $0.05B) capitalized at Kₑ
Ben Graham Formula	Earnings	$2.68	84.74x	yes	EPS $3.20 × (8.5 + 2×-5.0%) × (4.4 / 5.3%) (excluded from median)
ROIC-Justified P/B	Asset	$12.84	17.69x	yes	BV $45.16 × (ROIC 2.4% / WACC 8.6%)
P/Sales Sector	Relative	$182.60	1.24x	yes	Revenue $4.33B × sector P/S 2.5x
PEG Fair Value	Relative	—	—	no	—
Earnings Yield	Earnings	$34.59	6.57x	yes	EPS $3.20 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations Multiple	Relative	—	—	no	—
Clinical Phase NPV	Growth	—	—	no	—
Merton	Asset	—	—	no	—
V5 Mechanical	—	—	—	no	—

Solvency

Field	Value
Net debt	$1.1b
Net debt / NOPAT (after-tax)	3.66x
Net debt / operating income (pre-tax)	2.77x
Interest coverage	6.0x
Share count CAGR (buyback)	-2.2%
Burning cash	no

Bullet Takeaways

• No standard valuation family reaches the current price of about $279. The most generous method, an exit-multiple DCF, lands near $210, the peer-multiple method near $135, and the asset and earnings-power methods sit between roughly $30 and $57, so the price is a bet on a future margin and demand profile, not on the trailing numbers.
• The first quarter was strong: adjusted EPS of $1.80 beat the $1.33 consensus, net sales rose 12% to $1.06 billion, and management lifted full-year guidance, with the commercial and industrial segment now expected to grow in the mid-to-high 20s percent range.
• The bet hinges on margin recovery. Trailing operating margin is about 7.5%, but the price embeds a return toward the mid-teens, so the question is whether Generac can convert demand from an aging grid and data-center backup power into the profitability the multiple already assumes.

Bull Case

Begin with how Generac deploys its cash, because that signals where management sees value. The company is not paying a dividend; it is reinvesting in capacity and technology and buying back stock, with the share count roughly flat to slightly lower. The reinvestment is aimed at two adjacencies that broaden the business beyond home generators: the data-center backup-power market and energy-technology products such as the ecobee platform. When a company with a dominant position in residential standby chooses to plow cash into capacity for grid-edge and commercial power rather than return it, it is telling you it believes the demand runway is long enough to earn a high return on that capital. The recent analyst enthusiasm, including UBS raising its target to $335 from $305 in June 2026, tracks that capital-allocation thesis.

The demand backdrop the company is investing against is structural, and its own filing makes the case plainly. The FY2025 10-K describes "an aging and under-invested electrical grid infrastructure" that "remains highly vulnerable to potentially more severe and volatile weather," and notes that growth in intermittent renewable supply, as thermal generation retires, increases the need for backup power (FY2025 10-K, accession 0001437749-26-004568). It also frames the home-standby opportunity as still early: "Home standby penetration opportunity is significant. Many potential customers are still not aware of the costs and benefits of automatic backup power solutions" (same filing). A category with low penetration, a worsening grid, and a brand leader is the kind of setup that supports years of above-average growth.

The recent results show the demand converting into a re-accelerating top line. First-quarter 2026 net sales rose 12% year over year to $1.06 billion and adjusted EPS of $1.80 beat the $1.33 estimate, helped by stronger-than-expected sales of higher-margin home standby units after a winter storm. Management raised the outlook: residential products are guided to grow around 10% for the year, the commercial and industrial segment to the mid-to-high 20s percent range, and the adjusted EBITDA margin to 18.5% to 19.5%, up from the prior 18% to 19%. Rising volumes in the highest-margin product line, plus a margin guide that is moving up rather than down, is exactly the combination the elevated price requires to be justified.

Bear Case

The bear case is a sector-cycle observation: Generac's earnings power is tightly coupled to weather and outage events, and the price treats storm-boosted demand as if it were a smooth secular trend. The first quarter benefited from stronger home-standby sales after a winter storm, which is a real tailwind, but it is also a reminder that the demand pulse is lumpy. Home standby is a discretionary, big-ticket residential purchase that surges after high-profile outages and fades in calm periods, and the residential category has already lived through a full boom-and-bust cycle in recent years. A price that embeds mid-teens margins sustained for well over a decade is pricing the peak of the demand cycle as the baseline.

The valuation makes the stretch concrete. Not one valuation family reaches the price: the asset-based methods land near $30 to $34, the earnings-power and FCF methods near $44 to $54, the peer-multiple method near $135, and even the most optimistic exit-multiple DCF only reaches about $210, all against a $279 price. The inverted read is the clearest statement of the bet: at today's price the market is paying a multiple that requires operating growth to persist for roughly 16 years, a duration that sits in the high tail of what comparable companies have historically sustained, with about 90% of the cohort failing to match it. Trailing operating margin is only about 7.5% against an implied figure near 16.6%, so the entire premium rests on a margin recovery that has not yet shown up in the trailing numbers.

The execution risk is real and the balance sheet leaves less cushion than the demand story implies. The company carries about $1.4 billion of gross debt against roughly $266 million of liquid assets, net debt to operating income near 3.6x, and interest coverage around 4.7x, comfortable but not fortress-like for a cyclical. The push into data-center backup power and energy technology is promising but unproven at scale, and it puts Generac against larger, better-capitalized power-systems competitors. If a mild storm season or a soft residential cycle delays the margin recovery, there is no asset or earnings floor anywhere near the current price to catch the stock, and the duration the price assumes leaves little room for a single disappointing year.

Valuation

The defining feature of Generac's X-ray is that every family sits below the price, and the spread tells you what kind of bet this is. The asset-based excess-return and residual-income methods land near $29 to $34, anchored to a book value of about $45 per share and a trailing return on equity around 7%, below the cost of equity. The earnings-power methods, including a normalized EBIT value near $54 and an FCF capitalization near $44, sit only modestly higher. The peer-multiple method reaches about $135 on a blended P/E near 39x, and the most generous method, an exit-multiple DCF, reaches roughly $210. The central blended read is far below the $279 price. When no family reaches the price, the market is underwriting something beyond what the standard frames support.

The inverted view names that something. At about $279 the price values the whole company on a multiple that, at a 12.7% cost of capital, requires operating growth held near its self-funding ceiling for roughly 16 years. Each percentage point of growth shifts that implied horizon by about 2.5 years, so the price is highly sensitive to the durability of demand. The model places the embedded assumption in the high tail: only a small minority of comparable fast-growers have sustained growth that long, and the rarity reads as high on both the cohort and fade checks. The current 7.5% operating margin against an implied mid-teens figure tells you the bet is as much about margin expansion as about volume.

The honest synthesis is that Generac is a high-quality category leader trading at a price that already credits a long, smooth demand cycle and a full margin recovery. The structural drivers, an aging grid and low standby penetration, are genuine and well documented in the filing, and the raised guidance shows them converting into growth. But the methods that anchor to today's economics land far below the price, and the duration the price assumes is demanding. The value depends on storm-driven, lumpy demand behaving like a secular trend and on the new commercial and data-center adjacencies delivering at scale.

Catalysts

The clearest catalyst is the residential demand cycle, which is weather-driven: the first quarter beat partly because a winter storm lifted higher-margin home-standby sales, so each major outage event is a near-term demand pull, and a quiet season is the corresponding risk. Guidance trajectory is the key earnings test, with management raising full-year expectations, residential products guided to roughly 10% growth, the commercial and industrial segment to the mid-to-high 20s percent range, and adjusted EBITDA margin to 18.5% to 19.5%; the market will watch whether the next prints validate that lift. The margin recovery is the load-bearing variable, since the price embeds a return toward the mid-teens against a trailing operating margin near 7.5%. The two growth adjacencies are forward catalysts: expansion into data-center backup power and traction in energy technology such as the ecobee platform are driving recent analyst enthusiasm, and concrete contract wins would support the premium. Sentiment is constructive and rising, with UBS lifting its target to $335 from $305 on June 11, 2026, and Jefferies adding a Buy on June 22, 2026, against a consensus clustered near $282 to $305. The standing risk is a mild storm season or a soft residential cycle that delays the margin recovery the elevated price assumes.

Sources: Globe and Mail, Motley Fool transcript, Benzinga ratings, MarketBeat

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• CMI (CUMMINS INC)
• (no filing in the citation store)
• BE (Bloom Energy Corp)
• (no filing in the citation store)
• GEV (GE Vernova Inc.)
• (no filing in the citation store)
• PSIX (POWER SOLUTIONS INTERNATIONAL, INC.)
• (no filing in the citation store)
• FLNC (Fluence Energy Inc)
• (no filing in the citation store)
• ENS (ENERSYS)
• (no filing in the citation store)
• AMSC (American Superconductor Corporation)
• (no filing in the citation store)

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.