Shares in utilities giant Origin Energy Ltd (ASX: ORG) are tracking lower today and trade 15 basis points down at $6.53 on last check.
As global energy markets heat up amid European conflict and commodity inflation, shares of Origin have soared 25% higher this year. That's brought 12-month gains to 37% – 15 percentage points ahead of the sector.
Natural gas has powered higher to now trade back above US$6.35 Metric Million British thermal units (MMBtu) – a 10-year high – whilst Brent Crude still fetches US$100 per barrel after levelling down in recent weeks.
In fact, all energy markets are up by anywhere from 19% to 450% year on year, per Bloomberg data.
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What does this mean for Origin going forward?
Whilst pricing strengths have certainly helped out this year to date, Origin still has to back up the story with sales and profit growth, analysts say.
Depending on who you ask, it may or may not be capable of doing so. JP Morgan upgraded its outlook on Origin shares to neutral in early March, noting a strong pullback in prices, and that "there is clearly value in energy retailing."
"Since the release of its interim financial results on 17 February 2022, Origin's stock price has declined 11% (versus the ASX200 at -3%)," the broker said.
"[T]he recent underperformance now means the stock price is below our price target," it added.
We would also flag a number of potential positive catalysts including: 1) higher wholesale electricity prices potentially implying FY2023 guidance is conservative; 2) the recent approach for AGL shows corporate appeal in energy retailing; and 3) strength in LNG markets should mean improved dividends from APLNG. As a result, we are upgrading to Neutral on better valuation.
Meanwhile, analysts at Morgans downgraded its recommendation on Morgans from add to a hold yesterday.
"[Origin] shares have performed strongly and have moved past our target price," it said, cited by the Australian.
"International energy markets are providing tailwinds for LNG contracts but some of that volatility is being imported into the domestic market where ORG potentially could be exposed."
Meanwhile, Henik Fung, senior analyst at Bloomberg Intelligence said that "[f]ierce competition in Australia's retail power market could hurt Origin Energy's sales for the next two years," in a recent note.
As a result, "Origin Energy's sales may remain weak in difficult power market," it says, nothing that earnings in the retail power segment could "stay weak given the market situation".
At its current share price of $6.53, the Origin share price is 10 cents per share above the consensus price target of $6.43, per Bloomberg data.
According to Barrenjoey – it's not overvalued, as they reckon it's worth $7.21. Whereas JP Morgan reckons it's way overvalued at a $5.50 valuation.
