Generac Unveils 2023 Guidance; Focus Remains on Recovery in Home Generator Orders

We raise our Generac GNRC fair value estimate to $124 per share from $120 following the company’s fourth-quarter results and 2023 guidance. The main driver of our fair value estimate increase is a higher home standby sales forecast, partially offset by higher operating expenses. We view upside as limited for shares going forward following their recent rebound.

Generac’s 2023 guidance implies full-year net sales decline 6%-10% year on year and adjusted EBITDA falls approximately 17%-18%. This was slightly worse than our estimates for a 5% sales decline and 20% adjusted EBITDA margin. However, management’s commentary regarding sales and margin activity during the course of the year leaves us incrementally more positive on 2024.

Even though Generac is due to report a weak first half of 2023 as home standby orders remain low due to elevated inventories, management expects the second half to show solid year-on-year growth for the company’s most important product line. This leads us to raise our home standby sales forecast in 2024 by 10%, while reiterating our view that sales are likely to plateau long-term given competition from new technologies, such as home batteries.

We expect 2023 to be a reset year for the company’s clean energy business. The company expects to focus on expanded distribution capabilities this year following the bankruptcy of a key customer, and product reliability setbacks. Management noted the time to scale the clean energy business and the level of investment required has surpassed their initial expectations. However, they remain committed to this business long term. We continue to take a cautious view on Generac’s potential for long-term success in this market given the head start of incumbents.