The AGL Energy Limited (ASX: AGL) share price fell 6.9% to an intraday low of $10.38 on Thursday.
The ASX utilities stock has recovered a little to be trading at $10.49 at the time of writing, down 5.96%.
The energy provider has not released any news to the market today.
AGL's share price tumble appears to have been driven by a broker note from Barrenjoey this morning.
Let's find out why the broker has gone bearish on AGL stock.
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AGL share price falls 7% as broker tips lower earnings
According to the Australian Financial Review (AFR), Barrenjoey has cut its rating on AGL to underweight.
This is the equivalent of a sell rating.
The broker has also slashed its 12-month share price target on AGL by 18.8% from $13.80 to $11.20.
Barrenjoey forecasts lower earnings for AGL than it had previously estimated due to the expiry of cheap coal and gas supply contracts.
Barrenjoey has reduced its earnings per share (EPS) forecasts for FY26 and FY27 by 8% to 13%. It gets worse for FY28, with the broker cutting its forecast EPS for AGL by about 30%.
The broker estimates that AGL's earnings before interest, taxes, depreciation, and amortisation (EBITDA) will reduce by $300 million between FY27 and FY30.
The broker said several new investments in batteries and other projects will help partially fill the gap.
Barrenjoey head of energy and utilities research, Dale Koenders said:
These investments are part of a larger $8 to 10 billion investment over the coming 10 years that AGL has flagged to sustain earnings at FY24 levels, highlighting a need to keep investing to hold earnings flat.
The last lot of price-sensitive news from AGL came in August when the company announced its FY24 results as well as a binding agreement to acquire Firm Power and Terrain Solar for approximately $250 million.
Firm Power is a Battery Energy Storage System (BESS) developer with 21 projects in development. Terrain Solar is a solar project developer with six projects in development.
The combined development pipeline of Firm Power and Terrain Solar is worth 8.1 GW of energy. That was more than AGL's entire existing pipeline of projects at the time, which were worth a combined 6.2 GW.
AGL's Managing Director and CEO, Damien Nicks said:
The Group's development pipeline includes several mid-sized BESS projects, ranging between 200 and 500 MW and two-to-eight-hours storage duration.
We believe this high-quality development pipeline presents strong optionality for AGL, focusing on firming capacity which will be required to firm new renewable generation for our customer base and portfolio as thermal baseload generation exits the NEM.
My colleague Tristan has outlined the pros and cons of buying AGL at its current share price.
