Should You Buy Generac as Data Center Growth Tests Its Valuation?

At 18.78X forward earnings, GNRC is discounted to key benchmarks but trades close to its own historical norm. The investment decision therefore depends on backlog conversion, residential stabilization and disciplined capacity spending.

Generac’s C&I Growth Strengthens the Buy Case

C&I revenues increased 29% year over year to $556.5 million in the second quarter. Data center demand was a central driver, while mobile products and international growth also contributed.

Management now expects 2026 C&I product sales to increase in the low-30% range. That is above its prior mid-to-high-20% outlook and signals that the segment is becoming a larger part of Generac’s growth profile.

GNRC’s Valuation Looks Reasonable, Not Cheap

GNRC trades at 18.78X forward 12-month earnings, below 21.45X for its Zacks sub-industry and 20.28X for the S&P 500 Index. The relative discount offers some valuation support as the company expands its data center exposure.

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The stock’s five-year median is 19.25X, only modestly above the current multiple. Buyers are not paying a premium to Generac’s history, but they are also not entering at an unusually depressed valuation.

Generac’s Residential Outlook Clouds the Thesis

Residential revenues declined 2% to $621.3 million in the second quarter. Lower shipments of energy storage systems and portable generators outweighed higher home standby generator sales, with low outage activity weighing on portable demand.

Management reduced its 2026 residential growth outlook to the high-single-digit range from roughly 10%. Affordability concerns, difficult solar and storage conditions and a small divestiture could limit the segment’s near-term contribution.

GNRC’s Capacity Build Raises Execution Stakes

Generac expects production at its expanded Sussex, WI, facility to begin in the third quarter of 2026, one quarter ahead of plan. The Belvidere, IL, packaging facility is expected to become operational in the first quarter of 2027.

Capital expenditures are projected at roughly 4.5% of 2026 net sales. Caterpillar Inc. CAT provides electric power systems for data centers, making it a relevant benchmark for Generac’s large-megawatt expansion.

Cummins Inc. CMI also offers standby generator solutions for hyperscale, colocation and enterprise facilities. That competitive backdrop makes production reliability, delivery timing and customer support important as GNRC converts demand into revenues.

Generac’s Cash Flow Provides Some Cushion

Operating cash flow rose to $121.2 million from $72.2 million a year earlier, while free cash flow increased to $62.9 million from $14.5 million. Those gains provide funding support for planned capacity investments.

Debt totaled $1.33 billion at quarter-end and gross debt leverage was 1.5 times adjusted EBITDA. Interest expense guidance also increased to $65-$69 million, limiting flexibility if demand slows or expansion projects require more spending.

GNRC’s Bullish Signal Meets Mixed Style Scores

GNRC looks more suitable for a measured purchase than an aggressive entry. Growth investors willing to accept execution risk may find the valuation reasonable, while investors seeking a wide margin of safety may prefer to wait for clearer residential improvement or stronger backlog conversion.

The stock currently carries a Zacks Rank #1 (Strong Buy), which points to favorable near-term earnings-estimate trends. Its Growth Score of B also supports the growth case.

The Value Score of D, Momentum Score of C and VGM Score of C are less decisive. Those readings argue for balancing the data center opportunity against valuation discipline, residential weakness and the cost of capacity expansion.

You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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