Generac Holdings Inc.GNRCNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $136.41 per share(market-calibrated)

-38.3%

Upside to Fair Value

Current

$221.21

Pure Model

$130.53

Fair Value

$136.41

Bull Case

$170.68

Bear Case

$94.36

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

9.05%

Calibrated Growth

3.95%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $130.53.

What's Driving This Ratingfor GNRC

✓

CapEx already efficient

CapEx at 3.00% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 11.97% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $1.0B (12.66% margin).

↑

Strong near-term revenue growth

Analyst consensus projects 15.17% revenue growth in Year 1, fading to 6.16% by Year 5 and 2.25% by Year 10. Revenue reaches $8.1B by Year 10 (vs $4.2B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $89.14/share (10.6x terminal FCF) while exit multiple gives $171.91/share (28.2x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $221.21, the market implies 9.05% perpetual growth — 680bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 63.90% indicates efficient cash generation. FCF reaches $848M by Year 10 (10.46% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.81

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)12.66%

Cost of Debt

Pre-tax Cost of Debt5.19%

Tax Rate18.94%

After-tax Cost of Debt4.21%

Equity Weight (E/V)90.66%

Debt Weight (D/V)9.34%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (90.66% × 12.66%) + (9.34% × 4.21%)

= 11.87%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$4.8B	$5.9B	$6.7B	$7.4B	$8.1B
EBIT	$580M	$705M	$805M	$914M	$1.0B
Tax	$110M	$133M	$152M	$173M	$194M
NOPAT	$470M	$571M	$652M	$741M	$832M
+ Depreciation	$180M	$219M	$250M	$275M	$301M
- Capex	$146M	$177M	$202M	$222M	$243M
- Δ NWC	$148M	$115M	$91M	$76M	$41M
Free Cash Flow	$356M	$498M	$609M	$718M	$848M
Discount Factor	0.894	0.714	0.571	0.456	0.326
Present Value	$319M	$356M	$348M	$327M	$276M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$848M

Terminal Growth Rate2.25%

WACC11.87%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$9.0B

PV of Terminal Value$2.9B

Exit Multiple Method

Year 10 EBITDA$1.3B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$23.9B

PV of Terminal Value$7.8B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$3.3B

PV of Terminal Value$2.9B

Enterprise Value$6.2B

(-) Net Debt$992M

Equity Value$5.2B

Shares Outstanding59M

Price per Share$89.14

Exit Multiple Method

PV of Projected FCFs$3.3B

PV of Terminal Value$7.8B

Enterprise Value$11.1B

(-) Net Debt$992M

Equity Value$10.1B

Shares Outstanding59M

Price per Share$171.91

Pure Model Fair Value

$130.53

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
9.87%	$157.51	$159.72	$162.23	$165.09	$168.38
10.87%	$141.62	$143.25	$145.07	$147.11	$149.42
11.87%	$127.95	$129.17	$130.53	$132.03	$133.71
12.87%	$116.02	$116.97	$118.00	$119.13	$120.38
13.87%	$105.53	$106.27	$107.07	$107.94	$108.89

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$94.36

-57.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 2.27

Base Case

$130.53

-41.0% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.81

Bull Case

$170.68

-22.8% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.54

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth15.17%

Year 3 Revenue Growth9.18%

Year 5 Revenue Growth6.16%

Year 7 Revenue Growth4.60%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin11.97%

Terminal EBIT Margin13.00%

Tax Rate18.94%

Historical Capex / Rev3.00%

NWC / Revenue23.25%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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