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 the Firm (FCFF)

Microsoft Excel

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Generac Holdings Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.66%
01 FCFF0 319,810
1 FCFF1 364,731 = 319,810 × (1 + 14.05%) 323,738
2 FCFF2 412,813 = 364,731 × (1 + 13.18%) 325,233
3 FCFF3 463,669 = 412,813 × (1 + 12.32%) 324,242
4 FCFF4 516,786 = 463,669 × (1 + 11.46%) 320,769
5 FCFF5 571,525 = 516,786 × (1 + 10.59%) 314,875
5 Terminal value (TV5) 30,530,577 = 571,525 × (1 + 10.59%) ÷ (12.66% – 10.59%) 16,820,455
Intrinsic value of Generac Holdings Inc. capital 18,429,312
Less: Borrowings and finance lease obligation (fair value) 994,862
Intrinsic value of Generac Holdings Inc. common stock 17,434,450
 
Intrinsic value of Generac Holdings Inc. common stock (per share) $273.13
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.

Weighted Average Cost of Capital (WACC)

Generac Holdings Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 16,089,221 0.94 13.08%
Borrowings and finance lease obligation (fair value) 994,862 0.06 5.84% = 7.43% × (1 – 21.38%)

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

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 63,830,918 × $252.06
= $16,089,221,191.08

   Borrowings and finance lease obligation (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (19.50% + 22.20% + 21.10% + 22.70% + 35.20%) ÷ 5
= 21.38%

WACC = 12.66%

FCFF Growth Rate (g)

FCFF 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)
Interest expense 32,953 32,991 41,544 40,956 42,667
Net income attributable to Generac Holdings Inc. 550,494 350,576 252,007 238,257 159,386
 
Effective income tax rate (EITR)1 19.50% 22.20% 21.10% 22.70% 35.20%
 
Interest expense, after tax2 26,527 25,667 32,778 31,659 27,648
Interest expense (after tax) and dividends 26,527 25,667 32,778 31,659 27,648
 
EBIT(1 – EITR)3 577,021 376,243 284,785 269,916 187,034
 
Short-term borrowings 72,035 39,282 58,714 45,583 20,602
Current portion of long-term borrowings and finance lease obligations 5,930 4,147 2,383 1,977 1,572
Long-term borrowings and finance lease obligations, excluding current portion 902,091 841,764 837,767 876,396 906,548
Stockholders’ equity attributable to Generac Holdings Inc. 2,213,774 1,390,293 1,032,382 760,549 559,552
Total capital 3,193,830 2,275,486 1,931,246 1,684,505 1,488,274
Financial Ratios
Retention rate (RR)4 0.95 0.93 0.88 0.88 0.85
Return on invested capital (ROIC)5 18.07% 16.53% 14.75% 16.02% 12.57%
Averages
RR 0.90
ROIC 15.59%
 
FCFF growth rate (g)6 14.05%

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).

1 See details »

2021 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 32,953 × (1 – 19.50%)
= 26,527

3 EBIT(1 – EITR) = Net income attributable to Generac Holdings Inc. + Interest expense, after tax
= 550,494 + 26,527
= 577,021

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [577,021 – 26,527] ÷ 577,021
= 0.95

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 577,021 ÷ 3,193,830
= 18.07%

6 g = RR × ROIC
= 0.90 × 15.59%
= 14.05%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (17,084,083 × 12.66% – 319,810) ÷ (17,084,083 + 319,810)
= 10.59%

where:

Total capital, fair value0 = current fair value of Generac Holdings Inc. debt and equity (US$ in thousands)
FCFF0 = the last year Generac Holdings Inc. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Generac Holdings Inc. capital

FCFF growth rate (g) forecast

Generac Holdings Inc., H-model

Microsoft Excel
Year Value gt
1 g1 14.05%
2 g2 13.18%
3 g3 12.32%
4 g4 11.46%
5 and thereafter g5 10.59%

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)
= 14.05% + (10.59% – 14.05%) × (2 – 1) ÷ (5 – 1)
= 13.18%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 14.05% + (10.59% – 14.05%) × (3 – 1) ÷ (5 – 1)
= 12.32%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 14.05% + (10.59% – 14.05%) × (4 – 1) ÷ (5 – 1)
= 11.46%