Hurricanes Provide An Underappreciated Tailwind For Generac

Analysts at KeyBanc Capital Markets turned bullish on
Generac Holdings Inc.
after chatting with the
company's CEO Aaron Jagdfeld. The firm's Jeffrey Hammond upgraded Generac's stock rating from Sector Weight to Overweight with a newly assigned $55 price target. Generac's earnings have benefited from prior Hurricanes and the recent string of Hurricanes including Hurricane Irma should similarly support the company's forward momentum, Hammond explained. Specifically, hurricanes Sandy and Irene "catalyzed" the company's earnings in 2011 through 2014 as outage severity tied to Irma was approximately 80 percent of Sandy and 120 percent of Irene (see Hammond's track record here).

As such, Generac will likely "meaningfully" exceed earnings expectations over the next four to six quarters as the company benefited from incremental demand from the multiple hurricanes in 2017. Hurricane Irma could drive $200 million to $250 million in incremental revenue over the next year although it is difficult to quantify the impact given the lack of any clear historical precedent.

But the bullish case for Generac stems from more than just hurricanes, the analyst noted. The company has introduced numerous new selling tools, improved its data intelligence, and also boasts a stronger dealer base in the affected areas.

"Given the likeness of outage severity and early-on stock reaction, we believe it's reasonable to assume these storms are on a similar performance trajectory, giving us confidence the time is right to become more constructive on the name in anticipation of further price appreciation," the analyst concluded.

At last check, shares of Generac were up 3.79 percent at $47.67.

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Posted In: Aaron JagdfeldHurricane IrmaHurricane SandyHurricanesJeffrey HammondKeyBancKeyBanc Capital MarketsAnalyst ColorLong IdeasNewsUpgradesPrice TargetAnalyst RatingsMoversTrading Ideas