Shares of Generac Holdings Inc. suffered a record sell-off on Wednesday after the maker of home generators and solar equipment issued an earnings warning and cut its growth outlook, citing pressure on home sales. live.
That prompted KeyBanc analyst Jeffrey Hammond to retreat from his longtime bullish stance on the stock, saying that “it’s hard to defend this.”
Stock
GNRC,
plummeted 24.8% in afternoon trading, taking it to its lowest close since June 2020 and its biggest single-day drop to date since going public in February 2010. The next biggest sell-off was 14.0% on August 6, 2015.
Trading volume increased to 10.1 million shares, nearly six times the all-day average of about 1.8 million shares.
Generac, which reported preliminary third-quarter results before the opening bell, said net income fell to about $58 million, or 83 cents a share, from $132 million, or $1.93 la per share, during the same period last year.
Excludes unused items – such as warranty-related fees for clean energy products and bad debt costs associated with a clean energy product customer who filed for bankruptcy. property – adjusted earnings per share is about $1.75, or almost half of the FactSet consensus of $3.22.
Sales jumped 15% to about $1.09 billion, well below FactSet consensus of $1.34 billion.
Generac CEO Aaron Jagdfeld said: “While Commercial & Industrial Product shipments came in as expected, Residential product sales were under pressure this quarter.
He said standby generator installed capacity (HSB) continued to grow but remained below production in the quarter: “This resulted in higher field inventory levels and backup generator orders. Room availability from our channel partners was lower than previously expected even at the end of customer demand continuing to grow strongly due to increased power outages, particularly due to Hurricane Ian. “
To make matters worse, Jagdfeld said shipments of clean energy products were damaged by a major customer outage and have since filed for bankruptcy.
On its website, that customer, Pink Energy, said it was forced to close permanently “due to widespread consumer discontent due to faulty Generac solar equipment”.
For 2022, Generac has reduced its guidance range for sales growth from 36-40% to 22-24%. It also cut its net income margin outlook from 13-14% to 9-10%.
The company said it will report full Q3 results on November 2 before the market opens. Since the installation has lagged behind the production process, investors should keep track of what companies say about their inventory.
In the second quarter, inventories rose 13.8% year-on-year to $1.24 billion, after growing 13.4% in the first quarter.
KeyBanc’s Hammond downgraded Generac to industry weight, after being overweight since June 2021. He removed his stock price target of $325.
“While we usually don’t react to clearly conveyed news, we are increasingly concerned about the magnitude of HSB’s reset in 2023 and believe the relationship/bankruptcy of Pink Energy puts limits on investor sentiment and fundamental momentum as it relates to [Generac’s] Clean Energy Growth Story,” Hammond wrote in a note to clients.
Hammond said he will “revisit” the bullish argument once he feels more comfortable that HSB’s fundamentals have been reestablished and its clean energy credibility restored.
Cowen analyst Jeffrey Osborne cut his stock price target to $179 from $229, saying he doesn’t appreciate the extent of the inventory build-up. He believes the installation problems will likely persist into the first quarter of 2023, but he maintains his rating as buy, as he believes the problems will help forecast the City’s profits and revenue Wall is stable.
“While the advance announcement is a significant disappointment in the near term and puts management’s poor record on reseller visibility into greater focus, we believe this announcement will set sell-side estimates, which we consider excessive and substantial Osborne writes.
Generac stock is down 68.4% so far, while the S&P 500
SPX,
fell 22.6%.
