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Growing Data Center Backup Demand Will Foster Long-Term Energy Resilience

Published
25 Aug 24
Updated
08 Oct 25
AnalystConsensusTarget's Fair Value
US$203.88
6.6% undervalued intrinsic discount
08 Oct
US$190.49
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1Y
13.9%
7D
12.0%

Author's Valuation

US$203.886.6% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Last Update08 Oct 25
Fair value Decreased 1.42%

Analysts have lowered their price target for Generac Holdings from approximately $206.81 to $203.88. They cited recent weakness in storm-related demand and expectations for near-term revenue and margin pressure, although they acknowledged long-term growth drivers for the company.

Analyst Commentary

Recent research notes on Generac Holdings reveal a mix of cautious and positive outlooks from Wall Street analysts as they evaluated the company's growth prospects, revenue guidance, and market positioning.

Bullish Takeaways
  • Bullish analysts highlight strong execution heading into the second half of the year, with momentum in the data center segment cited as a positive driver.
  • Several price target increases reflect optimism around Generac's dominant position in the home standby power market, especially as recent residential product growth has exceeded expectations.
  • Pipeline growth in strategic areas such as PWRcell2, PowerMicro, and potential new center capacity are seen as opportunities that could boost annual revenue well beyond current targets.
  • Ongoing improvements in margins and narrowed topline guidance suggest management is executing effectively. The company is described as well-positioned to capitalize on long-term secular trends.
Bearish Takeaways
  • Bearish analysts expect near-term pressure on revenue and margins, largely due to a weaker storm season and reduced home standby generator demand, which accounts for about half of company revenue.
  • Some analysts have downgraded their ratings, arguing that recent stock gains have fully priced in Generac's current positives and result in limited further upside at current valuation levels.
  • There are concerns that residential solar market contraction could pose risks, even as management looks to offset related EBITDA drag in coming years.
  • Outage-driven demand remains a dependency for core standby products, creating a variable outlook, especially if storm or outage events remain subdued in key markets.

What's in the News

  • Generac announced the PWRmicro, an 820W installer-friendly microinverter designed for higher energy yield and streamlined installation. The product features integration capabilities for home energy management and comes with a 25-year warranty (Key Developments).
  • The company reported completing a share repurchase of 392,521 shares for $50.46 million in Q2. This brings total buybacks under the current program to 2,155,557 shares valued at $300.89 million (Key Developments).
  • Full-year 2025 net sales growth guidance was updated and narrowed to 2% to 5% compared to the prior year, reflecting an improved outlook alongside moderating price increases in the second half (Key Developments).

Valuation Changes

  • Consensus Analyst Price Target has decreased slightly from $206.81 to $203.88.
  • Discount Rate has risen modestly from 9.13% to 9.31%.
  • Revenue Growth projection has declined marginally from 7.44% to 7.27%.
  • Net Profit Margin estimate has edged down from 10.77% to 10.70%.
  • Future P/E ratio is almost unchanged, moving from 25.55x to 25.58x.

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

About Generac Holdings
    Designs, manufactures, and distributes energy technology products and solution worldwide.
What are the underlying business or industry changes driving this perspective?
  • 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 Earnings and Revenue Growth

Generac Holdings Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • 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

Generac Holdings Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • 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

How have all the factors above been brought together to estimate a fair value?
  • 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.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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