From Barron's:
Power to the People
Generac, the No.1 maker of back-up generators for homes, is doing a bang-up business, as bad weather and power outages make homeowners clamor for its products.
After a spate of unusually bad weather, generators are a hot topic among homeowners in the Northeast.
Many are buying, pricing or considering these back-up power sources, as they recover from electric outages that hit more than one million homes and lasted a week in parts of New York, New Jersey and Connecticut after a freak October snowstorm. That followed major power outages in the region from August's Hurricane Irene, aggravated by aging suburban and rural above-ground transmission lines.
"We're getting 50 to 80 calls a day about generators, and it's more than two weeks after the storm. Everyone wants a generator," says Paul Bonomo, president of Cannondale Generators of Wilton, Conn., which serves affluent Fairfield County in Connecticut and New York's Westchester County. Demand is so strong now, buyers must wait as long as eight weeks to have a generator installed.
Back-up generators that can produce 8,000 to 48,000 watts and run on natural gas or propane cost $5,000 to $25,000, installed. An 8,000-watter can supply basic household-power needs; a 20,000-watt unit is sufficient for most homes; and the 48,000-watt liquid-cooled unit is a favorite in wealthy towns. Even bigger units are available. Bonomo says he installed a 500,000-watt industrial generator for a 31,000-square-foot home.
In tony Greenwich, Conn., 40% of the 105 homes now on the market from $3 million to $5 million have generators, which are even more common in ultra-high-end homes there, says David Ogilvy, a local realtor. "In homes priced at $5 million or more, it's absolutely expected," he says. Greenwich is an anomaly. Nationwide, 98% of U.S. homes have no back-up generator.
ALL THIS IS HELPING Generac Holdings, a low-profile Wisconsin company that dominates the standby residential-generator market, with a 70% share. Its stock, recently at $24, is up 7% since the October storm, and 46% this year. Nonetheless, Generac isn't expensive, trading for 12 times projected 2011 profits of $2 a share, and about 10 times 2012's estimated $2.30. (It should be said that these projections reflect a sizable tax shield that runs another 10 years.)
It's possible that Generac, with a stock-market value of just $1.6 billion, could attract takeover interest from a larger industrial outfit. The company is controlled by a New York private-equity firm, CCMP Capital, which took it public in 2010 at $13 a share—after a 2006 leveraged buyout—and still has a 59% stake. A Generac sale could be CCMP's endgame, since private-equity firms need an exit strategy for their investments....MORE
