Generator stock Generac heads for best week since November amid heat wave, looming storm threats

CNBC

2 days ago

With hurricane season underway and an oppressive heat wave rolling across parts of the nation, investors have been snapping up shares of Generac.
The backup-generator maker is on track for its sixth straight day of gains and best week since November 2024. It is up nearly 12% this week.
High temperatures blanketed areas through the central and eastern United States starting last weekend, resulting in reported power outages in states such as New York, New Jersey and Illinois. Extreme heat warnings and advisories are still in effect for parts of the Mid-Atlantic, Ohio Valley and Southeast, affecting 130 million people, the National Weather Service said.
On top of that, this Atlantic hurricane season is expected to be above normal, according to the National Oceanic and Atmospheric Administration. The agency expects 13 to 19 total named storms, with six to 10 expected to become hurricanes. Of those, three to five are anticipated to be "major hurricanes," which are categories 3, 4 or 5.
The heat and storms are putting strain on the United States' already stressed and aging power grid — and it is expected to get worse. The risk of power outages caused by hurricanes could jump by 50% or more in some parts of the nation due to climate change, which could affect future storm characteristics, according to research from the Pacific Northwest National Laboratory and the Electric Power Research Institute last year.
This week, tropical storm Andrea became the first of the season, albeit briefly, according to AccuWeather. It quickly returned to a tropical rainstorm when winds subsided, the weather service said.
Generac CEO Aaron Jagdfeld addressed the issue in October with CNBC's Jim Cramer. The severe weather, plus the new crop of data centers, is putting a strain on the system, he said.
"This has become a massively critical discussion point," Jagdfeld said on "Mad Money." "This is only going to get worse."
Bank of America is forecasting electrical load growing at a 2.5% compound annual growth rate over 2024 through 2035.
Other names to watch include Trane Technologies, which makes cooling systems for residences and businesses — including data centers. The stock currently has an average rating of hold by the analysts that cover it, according to FactSet.
Utility stocks are also expected to benefit from the increase in power demand. Bank of America said it expects "significant" tailwinds in the second half for the power sector, with data centers deals helping improve margins for names like Constellation Energy and Vistra.
Still, with the utilities sector outperforming the S&P 500 this year, the bank is being selective.
"Versus that sector outperformance we would prefer laggards that have catalysts to drive outperformance in the second half," analyst Ross Fowler wrote.
His preferred opportunities include Sempra, Northwestern Energy and Alliant Energy.