Why the AGL share price can surge 35%: Morgans

What's ahead for the AGL share price?

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Key points
  • AGL shares have jumped 5% in the past year 
  • One major analyst is tipping a major upside for the AGL share price 
  • AGL is moving away from coal fired power generation towards renewables 

The AGL Energy Limited (ASX: AGL) share price has outperformed the S&P/ASX 200 Index (ASX: XJO) in the past year, but could it go higher?

AGL shares have jumped 5% from $6.22 at market close on 25 October 2021 to the current share price of $6.52. For perspective, the benchmark index has fallen nearly 9% in the same time frame.

Let's take a look at the outlook for the AGL share price.

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Image source: Getty Images

Is AGL a buy?

AGL is one of Australia's largest energy providers with a history spanning 185 years. One analyst is predicting AGL shares could rise by up to 35%.

Morgans investment advisor Jabin Hallihan is recommending shareholders "buy" AGL shares.

Analysts have an add rating on the AGL share price with a price target of $8.81. This is a 34.7% upside on the current share price.

Hallilan believes AGL's fixed fuel costs "leaves the company in a good position" given electricity prices are high in all states in Australia.

In comments cited by The Bull, he added:

The company is exiting coal-fired generation by 2035, accelerating the closure of the Loy Yang A power station by 10 years. It's also delivering positive near term earnings.

Meanwhile, Credit Suisse analysts upgraded the AGL share price to an outperform rating in early October with a price target of $8.20. The broker is optimistic AGL's free cash flow will remain strong, as my Foolish colleague James reported.

In a release in late September, AGL advised it is planning to exit from coal fired generation by the end of the 2035 financial year. AGL chair Patricia McKenzie said:

AGL is committing to an ambitious but achievable strategy to deliver a responsible and accelerated low carbon future.

We are aiming to reshape our energy portfolio into a cleaner and more flexible one, transitioning away from coal and focusing on new renewable and firming capacity

AGL share price snapshot

AGL shares have risen nearly 7% in the year to date, while they are down 1% in the last month.

In comparison, the S&P/ASX 200 Index (ASX: XJO) has shed nearly 9% in the year to date.

AGL has a market capitalisation of about $4.4 billion based on the current share price.

Motley Fool contributor Monica O'Shea has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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