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Should investors add Origin Energy to their portfolio in 2014?

According to a report in the Australian Financial Review, analysts at Macquarie Group (ASX: MQG) have an ‘outperform’ rating on integrated energy company Origin Energy (ASX: ORG) and have highlighted that the firm’s risk profile has dropped.

Macquarie’s view is based upon a slip in Origin’s share price (presumably over the past few years), yet the fundamentals of the business remain sound and unchanged. While financial year (FY) 2014 will continue to see the firm face some headwinds and low growth, the impending completion and beginning of production from the firm’s LNG interests is forecast to lead to a significant boost in earnings in FY 2015. This boost has also been helped by a recent deal struck between Origin and Santos (ASX: STO), which will lead to Origin supplying more gas to Santos’ Gladstone LNG project.

The step-change in earnings that is expected to occur during financial year 2015, makes 2015 a primary focus for investors looking to value the company. Based on consensus forecasts, earnings per share will rise from 69.6 cents per share (cps) in FY 2014, to 86.3 cps in FY 2015, placing the stock on a forward price-to-earnings ratio of 16.2.

In comparison, peer AGL Energy (ASX: AGK) has received a ‘neutral’ rating from Macquarie, with the broker citing uncertainty surrounding AGL’s bid for Macquarie Generation as an issue with regard to any share price re-rating in the near term. However, with consensus earnings for FY 2015 of 120.3 cps, the PE ratio is significantly lower than Origin’s at 12.4 times, which does add some appeal.

Foolish takeaway

The blue chip defensive nature of Origin’s business and the growth in earnings forecast to occur in the next few years would appear to make Origin a worthy consideration for investors’ portfolios. Coupled with a positive outlook versus the stock’s current valuation the investment case looks stronger.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy and Macquarie Group.

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