Stock Analysis on Net
Stock Analysis on Net

Generac Holdings Inc. (NYSE:GNRC)

This company has been moved to the archive! The financial data has not been updated since August 8, 2022.

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Generac Holdings Inc., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 13.42%
01 FCFE0 375,475
1 FCFE1 479,000 = 375,475 × (1 + 27.57%) 422,335
2 FCFE2 591,022 = 479,000 × (1 + 23.39%) 459,457
3 FCFE3 704,507 = 591,022 × (1 + 19.20%) 482,889
4 FCFE4 810,296 = 704,507 × (1 + 15.02%) 489,696
5 FCFE5 898,058 = 810,296 × (1 + 10.83%) 478,528
5 Terminal value (TV5) 38,482,051 = 898,058 × (1 + 10.83%) ÷ (13.42% – 10.83%) 20,505,092
Intrinsic value of Generac Holdings Inc. common stock 22,837,997
 
Intrinsic value of Generac Holdings Inc. common stock (per share) $357.79
Current share price $252.06

Based on: 10-K (reporting date: 2021-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.68%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Generac Holdings Inc. common stock βGNRC 0.96
 
Required rate of return on Generac Holdings Inc. common stock3 rGNRC 13.42%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rGNRC = RF + βGNRC [E(RM) – RF]
= 4.68% + 0.96 [13.79% – 4.68%]
= 13.42%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Generac Holdings Inc., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in thousands)
Net income attributable to Generac Holdings Inc. 550,494 350,576 252,007 238,257 159,386
Net sales 3,737,184 2,485,200 2,204,336 2,023,464 1,672,445
Total assets 4,877,780 3,235,423 2,665,669 2,426,314 2,019,964
Stockholders’ equity attributable to Generac Holdings Inc. 2,213,774 1,390,293 1,032,382 760,549 559,552
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00
Profit margin2 14.73% 14.11% 11.43% 11.77% 9.53%
Asset turnover3 0.77 0.77 0.83 0.83 0.83
Financial leverage4 2.20 2.33 2.58 3.19 3.61
Averages
Retention rate 1.00
Profit margin 12.31%
Asset turnover 0.80
Financial leverage 2.78
 
FCFE growth rate (g)5 27.57%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income attributable to Generac Holdings Inc. ÷ Net sales
= 100 × 550,494 ÷ 3,737,184
= 14.73%

3 Asset turnover = Net sales ÷ Total assets
= 3,737,184 ÷ 4,877,780
= 0.77

4 Financial leverage = Total assets ÷ Stockholders’ equity attributable to Generac Holdings Inc.
= 4,877,780 ÷ 2,213,774
= 2.20

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 12.31% × 0.80 × 2.78
= 27.57%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (16,089,221 × 13.42% – 375,475) ÷ (16,089,221 + 375,475)
= 10.83%

where:
Equity market value0 = current market value of Generac Holdings Inc. common stock (US$ in thousands)
FCFE0 = the last year Generac Holdings Inc. free cash flow to equity (US$ in thousands)
r = required rate of return on Generac Holdings Inc. common stock

FCFE growth rate (g) forecast

Generac Holdings Inc., H-model

Microsoft Excel
Year Value gt
1 g1 27.57%
2 g2 23.39%
3 g3 19.20%
4 g4 15.02%
5 and thereafter g5 10.83%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 27.57% + (10.83% – 27.57%) × (2 – 1) ÷ (5 – 1)
= 23.39%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 27.57% + (10.83% – 27.57%) × (3 – 1) ÷ (5 – 1)
= 19.20%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 27.57% + (10.83% – 27.57%) × (4 – 1) ÷ (5 – 1)
= 15.02%