Generac Holdings Inc (GNRC) is trading meaningfully down on Friday after a Wells Fargo analyst downgraded the stock to “equal weight”.

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Why did he downgrade Generac shares?

That’s an interesting call since the backup power generators company reported better-than-expected earnings this week and issued guidance that was roughly in line with Street expectations.

Generac sees weakness in the first half but expects its revenue to grow by over 30% by the end of the year, which, as per analyst Praneeth Satish, is a bit too optimistic.

 

This equates to quarterly EBITDA more than tripling from Q1 to Q4. Ultimately, this seems aggressive to us, as there’s limited visibility into installation capacity growth and clean energy challenges.

His base case is a 12% decline in the company’s revenue in 2023. Generac shares are currently up more than 25% for the year at writing.

What’s his price target on Generac Holdings?

Satish left his price target on Generac Holdings unchanged at $135 that does not represent a meaningful upside from its previous close.

It is also noteworthy here that the industrial stock is currently trading at a discount versus the average of its price-to-earnings multiple over the past five years.

On the flip side, the Wells Fargo (WFC) analyst forecasts an 11% rebound in Generac’s revenue in 2024. He agrees that if the Wisconsin-headquartered manufacturing firm does indeed manage to deliver on its guidance, Generac shares could unlock a whopping more than 30% upside from here.

The Fortune 100 company is now calling for $735 million of EBITDA in 2023.

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