Generac Holdings Inc. GNRC expects to generate approximately $350 million in free cash flow in 2026, even as it increases capital spending to expand production capacity and capitalize on growing demand for backup power generators. The company’s rapidly expanding Commercial & Industrial (C&I) business, particularly its data center operations, is creating significant growth opportunities while requiring additional investments in manufacturing, assembly and packaging facilities. Generac’s ability to balance these rising capital needs with strong cash generation will be crucial to supporting its long-term growth plans.
Generac reported second-quarter 2026 cash flow from operations of $121 million, up from $72 million in the prior-year quarter. Free cash flow rose to $63 million from $14 million a year earlier. The improvement primarily reflected higher operating earnings, cash receipts from tariff refunds and lower cash tax payments. These benefits were partially offset by greater working capital requirements. The results highlight the company’s improving cash generation, although some of the quarterly improvement was supported by tariff refunds, which may not represent a recurring source of cash flow.
Generac is increasing investments to meet surging demand for large megawatt generators used in data centers. The company secured two multi-year supply agreements with hyperscale customers and reported a $1.6 billion backlog for data center products. It expects approximately $450 million in data center revenue in 2026 and is accelerating capacity expansion across its domestic and international facilities. Investments include expanding its Sussex, WI, facility, adding a second production line and increasing packaging and metal fabrication capacity through its Belvidere, IL, facility and the Enercon acquisition.
Reflecting these requirements, Generac now expects capital expenditures to reach approximately 4.5% of forecasted 2026 net sales, including investments in Belvidere and other global large megawatt generator facilities. Management stated that the higher capital expenditure outlook represents an increase of roughly $50 million in dollar terms from its previous guidance. However, it expects capital spending to remain comfortably below 5% of sales as revenue expands and eventually move back toward historical levels.
Despite these higher investments, Generac maintained its full-year free cash flow forecast of approximately $350 million, with tariff refunds expected to help offset incremental capital expenditures. Management also believes the current capacity investments offer attractive returns, citing expected payback periods of less than 12 months based on the existing backlog.
Nevertheless, execution, working capital demands and the timing of large customer projects remain important considerations. Generac’s ability to convert rising data center demand into sustainable operating cash flow will determine whether free cash flow can comfortably support its expanding capital requirements.
Taking a Look at GNRC’s Competitors
Caterpillar Inc. CAT is benefiting from broad demand across construction, mining and power markets, supported by a record backlog, growing services and strong cash generation. Power & Energy gains from data-center power demand and healthy oil and gas activity, while infrastructure spending and mining investments support other segments. For third-quarter 2026, management expects strong year-over-year sales growth and a higher adjusted operating margin than 17.5% in the prior-year quarter. For 2026, sales and revenues are projected to rise in the mid-to-high teens. Adjusted operating margin is expected near the lower end of its target range, while MP&E free cash flow should reach the upper half.
Cummins Inc. CMI is benefiting from sustained data center power demand, multi-year backup power commitments and expanding prime power solutions. Firmer North American truck demand, China construction activity and power generation growth are supporting its outlook. Investments in energy-transition technologies and disciplined capital returns further strengthen its long-term prospects. For 2026, Cummins raised its revenue growth forecast to 10-13% from 8-11%, reflecting stronger demand across key markets. Management expects the second half of 2026 to outperform the first half. The company also raised the lower end of its EBITDA margin outlook to 18%, projecting a range of 18-18.5%, excluding first-quarter fuel cell business sale charges.
GNRC Price Performance, Valuation and Estimates
GNRC’s shares are up 22.4% in the past month while the Manufacturing-General Industrial industry has inched up 3.2%.
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Generac is trading at a forward 12-month price/earnings ratio of 18.15, lower than the sector’s multiple of 20.25.
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The Zacks Consensus Estimate for GNRC earnings for 2026 has seen a marginal downward revision over the past 60 days.
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GNRC currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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