Home Generators are Selling Out Everywhere Due to Massive Demand, Which is Good for Generac (GNRC) - Analyst

Home generators are out of stock across the U.S. due to surging demand and that is a good thing for top generator maker Generac (NYSE: GNRC). That was the thesis of Roth Capital's Philip Shen following meetings with management last week.

The analyst highlighted that recent checks indicate delivery wait times for new Home Standby Generators (HSB) orders have reached an all-time high for the company of 12-16 weeks.

"The last time the company experienced a backlog even close to this was after Superstorm Sandy in 2012, and even then the wait was only 6-8 weeks," Shen notes.

This is a "good problem to have" for Generac Shen said, and "has nothing to do with a failure on GNRC's part to ramp capacity quickly enough."

The question remains how the company catch up with its backlog and get back to a place where it can build up inventory before the 2021 busy season (roughly Aug-Nov). The meeting helped answer this question, the analyst notes.

Generac will use a three-fold approach to catch up: (1) run at full utilization with a temporary HSB line adding 20-25% capacity; (2) install permanent capacity in 6-9 months to increase capacity 75-80% above 2020 levels; and (3) dual-source every key component that goes into the final assembly process at the company's U.S. factories

As for the stock, the analyst believes there is still meaningful upside. "In our view, the company will likely hit or exceed the high end of the guidance provided during the Q2'20 earnings call," he said.

Shen raised his price target on Generac to a 'Street High' $230 while maintaining a Buy rating.

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