4 Companies that Will Benefit from a Failing Electric Grid
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Once upon a time, an extended power outage lasting for more than one day was a rare event. Now power outages lasting for extended periods are occurring with higher frequency. Last June, a wind storm called “Derecho” knocked out power in my local area for 8 days. Other nearby areas were without power for 2 weeks. On the morning of Oct. 30, a snowstorm brought on by Hurricane Sandy knocked out power in my area for nearly 4 days. As I write this, the lights still blink at random ,giving me concern as to whether or not I should have my generator on standby. It seems that we are in a new reality where a less reliable electric grid is the norm, and I believe four companies will benefit.
Generac (NYSE: GNRC) “predominantly” makes generators for residential and commercial uses, and will experience the most direct benefit from an increasingly unreliable electric grid. When I was in Home Depot recently, the Generac display in front of the store was surrounded by people.
Net sales increased in 2011 (34%) and during the most recent quarter (26%). On Oct. 31 management raised its revenue outlook to over 40% growth for the full fiscal year. In the most recent earnings announcement, CEO Aaron Jagdfeld believes the growth in sales directly relates to public concerns about the increasingly unreliable electric infrastructure, as well as the execution of the company's own strategies:
“The powerful macro drivers for our business combined with executing on our Powering Ahead strategic plan has lead to another strong quarter for Generac. The U.S. electrical grid continues to age and has suffered from a lack of investment. This coupled with a shift in demographics to an aging population dependent on a constant source of power are leading to the ongoing emergence of standby generators in the residential and commercial markets. Additionally, we have a number of exciting strategic initiatives underway that we expect will continue to diversify and grow Generac. With these initiatives and macro growth drivers, along with our competitive advantages and intense operating focus, we believe Generac is well positioned to capitalize on the expected increase in demand for backup power.” (CEO Aaron Jadfeld, 10/31/12)
The other day as I was getting gas for my own generator I noticed a group of utility trucks with the Mastec (NYSE: MTZ) label parked with our local AEP trucks. Mastec specializes in designing, building, and repairing infrastructure for the electrical, petroleum, and water industries.
Mastec’s revenue has grown 85% from 2009-2011. For two of those years 45% of the revenue came from utilities such as power distribution, gas, and petroleum. In the most recent quarter Mastec’s overall revenue increased 31%.
Briggs & Stratton
Briggs & Stratton (NYSE: BGG), a gasoline-powered engine maker for machines such as lawn mowers, pressure washers, pumps and generators saw its consolidated sales decline 2% for 2012. However, the company experienced an 8% gain in its products segment, mainly from generator sales softening the overall decrease. Generators can provide a future catalyst for revenue growth for the company.
Caterpillar (NYSE: CAT) makes and leases heavy industrial equipment for mining, construction, and industry in general, including generators that can energize entire office buildings.
The cost of an extended power outage can run high for a small start up business. For example, a gas station can lose thousands of dollars in perishables such as milk and ice cream, in addition to loss in fuel sales. In the future, an increasingly unreliable power grid means that a small business will need to lease a large generator like the one Caterpillar can provide to prevent the loss of perishable items and to stay open for business during an extended power outage.
In 2011, Caterpillar’s power systems segment increased 29% from $16 billion to $20 billion.
With the increasing unreliability of the power grid, the demand for generators, infrastructure construction, and repair will increase. The population at large will simply have to rely on sources outside the grid if they want power generation capability, and the companies that provide these services will benefit.
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