Why the AGL Energy Ltd share price surged higher today

AGL Energy Ltd (ASX:AGL) is one of the best performing stocks on the S&P/ASX 200 Index today. Find out why the stock is well placed to continue to outperform into 2018.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

AGL Energy Ltd (ASX: AGL) is powering up today with its share price surging 2.6% to a six-month high of $26.11 in late morning trade after touching an intra-day peak of $26.52 after Goldman Sachs upgraded the stock to "buy".

This makes the power utility one of the best performing stocks on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO), which has only managed to inch up 0.1%.

The stock has been on my watchlist even before today's broker upgrade. I was hoping for a pullback to under $25 before buying into it, but I suspect I will have to bite the bullet and pick it up at a higher price sometime next week.

The stock had been under a bit of pressure last month on concerns about government action to curb fast rising utility bills. It's an election winner and politicians need all the friends they can get right now.

This prompted the Victorian government to announce rebates for customers of tier-1 energy retailers, which includes AGL Energy and Origin Energy Ltd (ASX: ORG), following the "Thwaites Review".

The rebates, which start on 1st January 2018 when higher tariffs are expected to hit households, will dent the bottom line of AGL in the short-term, but that was an outcome to be celebrated by investors as the alternative was a lot worse.

The Thwaites Review recommended replacing standing offers with a regulated service offering instead, which would mark the start of market re-regulation.

The decision by the Victorian government to force retailers to give rebates to some customers mean that the risk of re-regulation is a lot smaller. AGL has dodged a bullet!

Citigroup estimated that Victoria's decision will subtract 1%-3% off AGL's FY19 earnings given that around 10% of its customer base is located in that state.

This doesn't end the political risks to the sector, but it's enough to put the stock on an upward trajectory in the near-term.

What's more, AGL is well run and its earnings are relatively predictable when compared to the uncertain domestic economic outlook.

It's worth paying for quality and certainty, particularly given its dividend yield of around 5%, and around two-thirds of analysts covering the stock thinks it's a buy.

There are other juicy dividend buys that are also worth putting on your watch list. The experts at the Motley Fool have nominated its top dividend stock for next year and you can get your hands on this free report by clicking on the link below.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »