Leading global manufacturer of power generation equipment, Generac Holdings Inc (GNRC, Financial), also advanced and was among the top 5 performers in the S&P 500 this quarter. Shares traded higher amid reports of widespread power outages and oppressive heat across the southern U.S. Moreover, demand trends for home standby generators have begun to pick up, while pandemic-related headwinds from high inventory levels began to subside.
In our view, GNRC’s unmatched distribution network and product portfolio enjoys strong brand advantages, creating a wide moat for this niche business which commands a 75% market share in the North American residential market.
Factors Limiting Growth and Recent Developments
Historically, growth has been limited due to a lack of awareness around the benefits of having a home standby generator, as well as its high price point. However, elevated power outage events, both weather-related and due to aging infrastructure, have tipped the scales in both the residential and commercial markets.
Future Expectations for Generac Holdings Inc
We expect these heightened consumer sensitivities to result in a long runway of penetration across an expanding addressable market, margin expansion and free cash flow generation.
Source of Information
From John Rogers (Trades, Portfolio)' Ariel Fund second-quarter 2023 commentary.
