GNRC: Margin Recovery And Capacity Expansion Will Drive Upside Into 2026

Key Takeaways

• Growing demand for backup and distributed energy solutions, driven by AI, digitalization, and climate change, positions Generac for sustained revenue and market share growth.
  
• Technological innovation, operational efficiencies, and favorable industry trends support higher-margin, recurring revenues and enhanced long-term earnings stability.
  
• Generac faces long-term growth and margin risks due to headwinds in residential solar, dependence on outages, clean energy struggles, data center investment uncertainty, and diesel transition challenges.

Catalysts

Designs, manufactures, and distributes energy technology products and solution worldwide.

• Accelerating demand for backup power solutions in data centers driven by AI adoption and global digitalization has resulted in a structural supply deficit for large commercial generators; Generac's rapid entry and >$150 million backlog position it to capture significant revenue growth and operating leverage over the next several years, with further potential upside as the company expands capacity to address 2027+ demand.
  
• Climate change-led increases in the frequency and severity of weather events continue to drive a higher baseline level of demand for residential standby and portable generators; the company's expanded dealer network and strong retail presence position Generac for sustained revenue growth, with added margin tailwinds from next-generation product launches optimized for lower cost and higher efficiency.
  
• Persistent grid vulnerabilities and rising power prices are supporting secular growth in distributed energy resources and home energy management; Generac's continued innovation with energy storage systems, new microinverter launches, and integration with ecobee are helping transition the business to higher-margin, recurring revenue streams and reducing earnings cyclicality.
  
• Structural improvements in gross margins, supported by favorable pricing realization, supply chain efficiencies, and cost control initiatives, are driving durable improvement in EBITDA margins (raised outlook to 18–19%); as the energy technology segment's development costs subside and C&I revenue scales, margin expansion is likely to be sustainable through 2026 and beyond.
  
• Industry-wide regulatory and investment trends (e.g., backup power requirements in critical infrastructure, grid resiliency initiatives, aging grids) are expanding the total addressable market for Generac, providing long-term visibility into higher top-line growth, improved market share, and greater earnings stability.

Generac Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Generac Holdings's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.2% today to 10.8% in 3 years time.
• Analysts expect earnings to reach $593.3 million (and earnings per share of $9.99) by about September 2028, up from $360.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, down from 29.6x today. This future PE is lower than the current PE for the US Electrical industry at 33.7x.
• Analysts expect the number of shares outstanding to decline by 1.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.01%, as per the Simply Wall St company report.

Generac Holdings Future Earnings Per Share Growth

Risks

• Management expects the residential solar market to contract significantly in the years ahead (potential decrease of 20–50%), which may force Generac to recalibrate investment and reduces the long-term growth potential and addressable market for the company's clean energy segment, potentially pressuring revenue and margins.
  
• Despite strong current demand, sales in critical product categories such as home standby and portable generators remain heavily reliant on major power outage events, which are unpredictable and result in "afterglow" effects that could flatten or decline if outage activity normalizes, posing long-term risks to growth consistency and revenue stability.
  
• The company's clean energy (solar/storage) business has been a drag on earnings (300–350 basis points expected for 2025) and requires ongoing cost reductions and recalibration; failure to reach sustained profitability in this segment or continued depressed market conditions could weigh on net margins and overall corporate earnings.
  
• Entry into the data center generator market, while promising, requires aggressive capital investment, expansion of production capacity, and successful supply chain management-any delays, misjudged demand, or execution missteps could result in excess capacity, higher capex, and margin pressure, particularly if data center growth or hyperscaler demand slows.
  
• Generac's heavy reliance on diesel generator products and corresponding supply chains expose it to tightening environmental regulations globally, potential carbon taxes, and eventual secular decline as customers increasingly seek renewable, low-carbon, or hybrid solutions; this risk could compress future revenues and challenge long-term competitiveness and profitability.

Valuation

• The analysts have a consensus price target of $204.5 for Generac Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $250.0, and the most bearish reporting a price target of just $165.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.5 billion, earnings will come to $593.3 million, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 9.0%.
• Given the current share price of $181.8, the analyst price target of $204.5 is 11.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.