AGL shares are up 60% since March: Is it too late to buy?

It’s a turnaround for the ages – AGL Energy (ASX: AGL) shares are up more than 60% since March – which was further validated after an upbeat outlook last Friday, including an upgraded FY23 guidance and expectations of net profits to more than double in FY24.

The Investor Day presentation guided to FY24 net profit between $580 million to $780 million, up from the upgraded guidance this year of between $255 million and $285 million. The stock close up 9.7%, but off session highs of +15.3%, with approximately 24 million shares trading hands (more than 470% of the 20-day average).

AGL 12-month price chart (Source: Market Index)   

It was just four months ago that AGL reported an interim net loss of more than $1 billion, while underlying profits halved to $87 million due to impairment charges relating to the company’s accelerated decarbonisation plan. Over the next three sessions, AGL shares tanked almost 15%.

Looking Back: Bullish Analysts and Insiders

The February half-year result missed analyst expectations by a wide margin. Post earnings, most analysts lowered their price target but maintained a BUY rating, with expectations for strong growth in FY24. 

Among 14 sell-side ratings:

• Buy: 50%

• Hold: 36%

• Sell: 14%

• The average price target was lowered by 6.9% to $8.11

What was more intriguing was the sheer amount of insider buying. Almost every Board member bought the dip.

Looking ahead: Still bullish but limited upside

The Investor Day left analysts feeling upbeat about AGL’s position as a low-cost energy producer with a strong customer base. The FY24 guidance was ahead of consensus expectations, who noted potential for further earnings growth beyond FY25.

Analysts were concerned about AGL’s transition to renewable energy, but viewed the project pipeline as manageable – At least for now. 

JPMorgan was one of few brokers to downgrade the stock from Overweight to Neutral, this reflected:

• Plant reliability becomes a growing risk due to ageing coal-fired power plants

• High gas prices and power purchase agreement prices could see structurally higher electricity prices

• The FY24 guidance may be conservative, with potential pricing upside and earnings growth in FY24-25

The vast majority of brokers are now BUY rated but after a ~60% rally from March lows – It was difficult for them to see any further price upside.

Across 10 sell-side ratings:

• Buy: 70%

• Hold: 30%

• Sell: 0%

• The average price target increased 9.0% to $10.40