Generac Holdings is changing course, stepping back from parts of its clean tech business that have been dragging on performance. The move has prompted Jefferies to upgrade the stock from “Underperform” to “Hold,” saying the shift should help improve profit margins.
Jefferies noted that pulling away from underperforming clean tech investments, especially in residential solar, could give the company more breathing room financially. Generac had invested heavily in solar and residential energy technology in recent years. Still, the returns have been disappointing due to weak demand, a product recall, and a small market share.
The company had once projected that its residential energy technology segment could bring in $700 million in 2026, growing over 30% annually from 2023. That outlook has now been cut sharply. Generac expects sales in the range of $300 million to $400 million in 2025, with additional challenges expected the following year.
According to Jefferies, the scaled-back investment should reduce the pressure on margins. They estimate the energy technology business will still weigh on profitability in 2025 but say margins could expand by roughly 1.5 percentage points if the segment breaks even, and by about 1.75 points if it stops being a drag entirely, though this would come at the cost of earlier revenue growth expectations.
Generac is also making a push into the large generator market, going head-to-head with Caterpillar and Cummins. The company already has a $150 million backlog for 2026 orders and says it can generate $500 million in annual sales in this category.
Data centres remain a big focus for future growth, but Jefferies cautioned that competition will be fierce. Larger rivals have stronger customer relationships and far more scale, which could limit how much market share Generac can realistically win.
Overall, Jefferies said the strategic shift offers near-term benefits by improving profitability and giving the company a clearer focus, even if it means sacrificing some of the top-line growth it once anticipated.