Investment Thesis
Generac faces severe operational headwinds with net income down 49% YoY and EPS down 50%, coupled with declining revenue and weak returns on capital (ROE 2.7%, ROA 1.3%). While the company maintains positive free cash flow and moderate leverage (0.45x D/E), the deteriorating profitability trend, tight interest coverage (1.7x), and poor capital efficiency raise serious concerns about earnings sustainability without substantial operational improvement.
Strengths
- Positive free cash flow of $89.9M despite earnings pressure demonstrates underlying operational cash generation
- Moderate leverage at 0.45x debt-to-equity with manageable $1.2B long-term debt relative to $2.7B equity
- Healthy gross margin of 38.7% indicates product pricing power despite revenue challenges
Risks
- Catastrophic 49% net income decline and 50% EPS decline signal severe operational deterioration or one-time charges
- Extremely weak returns on capital (ROE 2.7%, ROA 1.3%) indicate poor capital efficiency and value destruction
- Interest coverage of only 1.7x leaves minimal cushion for further earnings deterioration or adverse events
- Revenue contraction and quick ratio of 0.99x suggest working capital stress and potential liquidity pressure
Key Metrics to Watch
- Net income and EPS trajectory recovery in next quarters
- Interest coverage ratio trend (critical <1.5x warning signal)
- Revenue growth stabilization
- Operating margin expansion
- Return on equity improvement toward >8% threshold
Financial Metrics
Revenue
1.1B
Net Income
73.3M
EPS (Diluted)
$1.24
Free Cash Flow
89.9M
Total Assets
5.6B
Cash
265.5M
Profitability Ratios
Gross Margin
38.7%
Operating Margin
11.1%
Net Margin
6.9%
ROE
2.7%
ROA
1.3%
FCF Margin
8.5%
Balance Sheet & Liquidity
Current Ratio
2.03x
Quick Ratio
0.99x
Debt/Equity
0.45x
Debt/Assets
52.2%
Interest Coverage
1.66x
Long-term Debt
1.2B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T15:20:59.136125 |
Data as of: 2026-03-31 |
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