Generac Holdings (GNRC)
Industrial / Equipos de generación de energía
North American leader in backup generators with a well-established distribution network, now facing a secular opportunity in data centers (backlog ~US$1,600M) that is not yet fully reflected in a return on capital still below the 10% bar, after a 2025 hit by US$158M in legal provisions.
- Price
- $202.26
- Intrinsic value (5y, base)
- $254
- Total annual return (5y)
- 4.7%
- Status (nominal)
- Fairly valued
- Margin of safety
- +1%
The essentials
- Data center products backlog of ~US$1,600 million, with two hyperscale contracts signed and revenue visibility into 2027.
- 2025 profitability distorted by US$158 million in legal provisions; return on capital today ~8.9%, below the 10% bar.
- Share buybacks paused over the trailing twelve months following the Enercon acquisition and the product liability settlement.
Intrinsic value — two valuation methods
The methods disagree: one places the value today above the price ($202) and the other below.
Pillars of the analysis
The verdict — today vs 5 years
Today — fairly valued: at $202 trades close to its value discounted to today (~$204); the discount is positive but does not reach the margin of safety we require (≥38%).
At 5 years — En valor: the target price ($254) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.
The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$126.
Thesis
The business
Generac is a manufacturer of backup power generation equipment with a well-established distribution network and a secular opportunity in the data center market, whose visible backlog reaches ~US$1,600 million. Recent profitability was distorted by legal provisions in 2025 and by a one-time tariff refund in 2026.
The valuation
It is valued on EV/EBIT, the standard method for an industrial with no captive-finance arm. With the trajectory anchored to the guidance from the July 2026 release and an exit multiple within the industrial band, the base case gives $254 per share versus the current $202 — a +5% annual return.
The margin of safety
It trades close to intrinsic value, far from the required margin of safety. The return on capital today (~8.9%) is below the 10% bar, so the exit multiple sits in the low-to-mid tier of the industrial band until a sustained margin recovery is seen.
What to watch
The central disconfirmer is whether the data center backlog translates into sustained revenue and margins, or whether the business reverts to depending on power-outage activity and one-time items like the 2026 tariff refund. Also watch the trajectory of legal provisions and the pace of share buybacks, currently paused.
Educational / informational. Does not constitute investment advice.