Generac’s (NYSE:GNRC) corporate purpose, as stated in its February 2023 investor presentation, is to lead the evolution to more resilient, efficient, and sustainable energy solutions. As the energy transition is the largest secular growth opportunity of our time, pure plays like Generac stand out as uniquely asymmetric risk/reward opportunities.
Residential Opportunity
Generac’s business can be divided into two distinct end-market segments, residential and commercial/industrial. Beginning with residential, the following slides from the February 2023 investor presentation capture the essence of the opportunity. Please note that the blue and the orange lines represent central air conditioning and HSB (home standby power) penetration in North America, respectively.
Source: Generac February 2023 Investor Presentation
Source: Generac February 2023 Investor Presentation
As someone with experience in single and multi-family residential real estate, it is easy to envision home standby power systems (the orange line in the first image) following the path of central air conditioning (the blue line in the same image). In order to sell a mid- to high-end residential property today, central air conditioning is nearly a universal requirement. This of course was not always the case, as market expectations have evolved over time.
Notice that Generac estimates that a 1% increase in penetration in the HSB market translates into $3 billion of sales potential. For reference, Generac generated $4.6 billion of total sales in 2022, with $2.9 billion coming from the residential segment. If the HSB market tracks central air conditioning, going from 6% to 88% penetration equates to a $245 billion residential revenue opportunity in North America alone.
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