Wells Fargo Says Generac Stock Decline Offers Buying Opportunity (NYSE:GNRC)

Generac Holdings (NYSE:GNRC) offers a better risk-to-reward ratio after shares of the backup generator maker tumbled this month, according to analysts at Wells Fargo Securities.

“While Generac may need to deal with inventory issues Praneeth Satish, analyst at Wells Fargo, said Monday in a near-term report that the long-term positive fundamentals for the business remain intact. He points to weather outages and the instability of renewable sources as driving the need for backup systems.

Generac lost 25% of its value on October 19 – the biggest single-day drop in data in 12 years – after cut its full-year outlook and said third-quarter revenue will be below Wall Street estimates. Lower guidance has led some analysts to downgrade their investment ratings for stocks.

Generac’s decline marks an adjustment for a company whose sales have picked up as the Covid-19 pandemic has forced many people to stay at home with backup electrical equipment installed. Optimistic investors have pushed Generac to adjust its guidance to reflect softer demand as more people return to their pre-pandemic routine of going to the office.

“With equities back to pre-Covid levels, expectations for strong Covid-driven growth are now outside valuation,” Wells Fargo said. The bank cut its price target to $175 per share from $285 while revising its EPS estimate for Generac.

Generac is down 67% this year, compared with a 21% drop for the S&P 500 Stock Index (SP500).

The company will report its third-quarter results on November 2, before the US stock market opens for regular trading.

Looking for Alpha Contributor Logan Colhoun Rating Generac (GNRC) as a Buy on relative value. Columnist JR Research has a Buy rating on Generac (GNRC), stating that the stock is undervalued after its sell-off.