Valens Equity Weekly Insights - 2023 05 02
Generac (GNRC) has a dominant and growing market position for backup power generation and storage, a trend that is likely to grow for years. Uniform Accounting highlights that the market not pricing in these tailwinds, and Generac's potential to grow and expand returns faster signal the potential for equity upside.Generac owns 80% market share for household backup generators, a market with low penetration and accelerating demand. With households and businesses relying on more “essential” equipment like cell towers, temperature control, and IoT components, backup power itself is becoming an essential service. That's why Generac was able to expand its Uniform ROA for five consecutive years through 2021 and grow investment above 10% in 12 of the last 13 years. With the market pricing in lower growth and fading returns, Generac
should be able to outperform the market's expectations.
GNRC's management is closely aligned to focus on margin expansion and overall growth, two critical factors for driving equity upside.
Management confidence in the Q2 earnings call about its margins, demand, and growth opportunities suggest management is executing on the company's ongoing strategy.
Alteryx (AYX) is being removed from the Conviction Long List. We had thought Alteryx' end market would protect it from the struggles in the SaaS industry, and that its conversion of its business last year would lead to fundamentals accelerating this year. As the most recent earnings call highlights, the broader industry's slowdown has come for Alteryx though, with revenue slowing significantly. We are closing Alteryx down 62%.
GNRC
Generac Holdings is a designer and manufacturer of a range of power generation equipment and other power products serving the residential, light commercial and industrial markets. The company's products include residential, commercial and industrial standby generators, as well as portable and mobile generators used in a range of applications. Other engine powered products that the company designs and manufactures include light towers which provide temporary lighting for various end markets; commercial and industrial mobile heaters and pumps used in the oil and gas, construction and other industrial markets; and a product line of outdoor power equipment for residential and commercial use.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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