Generac’s fundamentals haven’t improved despite rally, say analysts at Bank of America

Shares of Generac Holdings Inc (NYSE:) traded above $150 as recently as July 3, well off April’s lows of $92. However, not everyone on Wall Street thinks the move was justified. In a note to clients on Thursday, analysts at Bank of America Securities maintained their Underperform rating on shares and lowered their price objective on the stock to $90 from $95. Even though shares of Generac have rallied, fundamentals haven’t improved, they said.

Gains in the stock were tied in part to media reports on power outages and the perception of increased outage activity, but despite the headlines, outages are actually within historical ranges, analysts argued.

“Although we have observed an increase in mentions of power outages, the outage data is milder than perception suggests. The most recent peak in outages is well below Winter Storm Uri and severe hurricanes (i.e. needle moving demand events), and our conversations with [management] corroborate our thesis. We expect some increase in [in home consultations] because of latest activity, but given sales cycle times, GNRC is unlikely to recognize any incremental revenue until [the fourth quarter]”, said a team of BofA research analysts.

Bank of America anticipates below consensus revenue, operating profitability and earnings due in part to challenges in the home standby market.

“While HSB channel inventory is readily available, we argue dealers will likely shift towards just in time inventory management, and there is risk to [management’s] contemplated ‘baseline demand.’ With still strained fundamentals and steep execution risk ahead, we see further downside to consensus estimates and risk of a guidance cut,” said the analysts.

Shares Generac fell by 11% in the past two days, including today’s 4% decline. However, at $132 they still trade well above Bank of America’s $90 price objective.