Bank Of America: Sell Generac On 'Vulnerable' Outlook, New Survey Data

In a report published Thursday, BofA Merrill Lynch analyst Ross Gilardi downgraded the rating on

from Neutral to Underperform, while reducing the price objective from $43 to $33. Generac's margins are expected to remain under pressure in 2H15 on account of the weak power outage environment which has made it difficult for the company and its dealers to destock. The company's 2Q15 performance was affected by demand headwinds. "Our latest dealer survey revealed that only 29% of dealers saw sequential order improvement in Q215. Meanwhile, we see ongoing headwinds from rental customers (25% of GNRC) who over-fleeted in Q414 in advance of the crude collapse," analyst Ross Gilardi mentioned. Extended inventories and demand headwinds point towards the vulnerability of the company's 2015 outlook. In the report, BofA Merrill Lynch noted that Generac expects the contribution of the Commercial & Industrial segment to its sales to increase from 31 percent in 2010 to 51 percent by 2018. "To get there, the company plans to be acquisitive internationally, particularly in Europe. We view C&I as a more competitive cyclical space with much lower margins than GNRC's Residential business," the report added.