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Posted By Admin on 11th Oct 2019
Who says weather emergencies are bad for business?
Stock in the largest seller of backup home-electricity generators rallied nearly 10% on Wednesday, while the S&P 500 was up just 1.1%, as widespread power outages struck central and northern California with short notice.
It is wildfire season in California. This week, fire-prone weather has prompted Pacific Gas and Electric to shut down electricity for approximately 800,000 of its customers. The utility filed for bankruptcy protection in January to manage the legal costs of deadly wildfires caused by its equipment in recent years. PG&E warned customers about the “precautionary measure” on Monday.
The news of outages seemed to bring a rally in shares of Generac Holdings (ticker: GNRC), a company that makes backup generators for homes and businesses.
Generac estimates that it sells more than 75% of the U.S.’s residential backup generators, and 25% to 30% of portable generators. It has been advertising in California in recent months, according to an investor presentation, after news that PG&E planned to shut down power in dry, hot and windy weather to minimize wildfire risk. Generac expects California to add $100 million to its revenues by 2023.
The basic bull case for Generac is obvious, if rather grim. Extreme weather has become more common because of climate change, and the increased frequency of inclement weather has made it tougher for utilities to maintain their electrical distribution grids.
Analysts point out that the company is expanding its business into solar-power provision. This year it bought Pika Energy, a maker of batteries that capture and store solar or grid power, and Neurio Technology, which makes hardware and software to monitor energy use.
And manufacturing activity is slowing down in the U.S. and abroad. So Generac’s home-generator business provides the “best growth outlook in [the] U.S. machinery [sector] by a country mile,” according to Bank of America Merrill Lynch.
“California was never much of an addressable market for Generac because of the absence of major power outage events, but that has all completely changed with PG&E’s bankruptcy and last year’s deadly fires,” wrote analyst Ross Gilardi in a Sept. 5 note.
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