Analysts at investment bank Goldman Sachs say Origin Energy Ltd (ASX: ORG) shares are seriously undervalued.
Origin Energy is one of Australia’s leading energy retailers, with substantial operations ‘upstream’ (i.e. in electricity generation and storage). Origin also operates a range of renewable energy projects, such as wind farms and solar panel farms. It’s also the leading gas producer in Australia.
Origin = Undervalued?
Goldman Sachs released a report last night updating their target price for Origin. They retained the buy rating and updated the price target to $9.90. With the current share price at $7.20, this implies Origin shares are undervalued by 37.5%.
Outlook Less Risky
The reason for the positive outlook on Origin is two-fold, according to the analysts.
First, there will be greater clarity on energy policy following the federal election, which has been announced for May.
Second, re-regulation of retail energy tariffs is set to conclude by July 1st, which Goldman says supports, “a re-rating of Origin’s valuation in line with historical multiples.”
Is Origin A Buy?
The analysts’ report provides a convincing case that Origin shares may be undervalued and by a significant margin. For an investor, there seems to be a reasonable margin of safety.
However, Origin’s share price will still be subject to energy prices, which can be difficult to predict and, at times, volatile.
Long-term, Origin faces risks as Australia moves toward more renewable energy and other sources or providers.
Origin might have a place in a balanced portfolio, but it’s important to also invest in companies that aren’t reliant on resource prices or energy prices. Companies like those in the free report below might be a good place to start looking.
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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.
