The AGL Energy Limited (ASX: AGL) share price and the Origin Energy Ltd (ASX: ORG) share price could be on the rise on Thursday after being the subject of a positive broker note out of Goldman Sachs.
According to the note, the broker believes share price weakness over the last 12 months has left both energy companies trading at attractive levels.
Goldman has a buy rating and $24.40 price target on AGL Energy's shares and a conviction buy rating and $9.90 price target on Origin Energy's shares.
For AGL Energy's shares this implies potential upside of over 13% and for Origin Energy the potential upside implied with Goldman's price target is a sizeable 37%.
Why does Goldman Sachs think now is the time to buy?
As well as their share price underperformance, Goldman believes that concerns over the Federal election and the impact it could have on wholesale electricity prices has been overdone.
In fact, the broker believes that wholesale electricity prices will stay higher for longer. This is expected to be driven by an under-supply in firming generation.
Goldman also expects regulatory uncertainty to ease in the near term and support their shares.
It said: "Regulatory certainty emerging over the next 12 months, driven by three key factors including, consumer bill price relief from lower infrastructure charges 2020/21, finalisation of National Energy Policy post the May 2019 Federal election, and finalisation of the Default Market Offer or retail electricity price regulation, which we expect to favour the gentailers' market position, lowering churn."
Should you invest?
If Goldman is correct with wholesale electricity prices remaining higher for longer then I think both AGL Energy and Origin Energy could outperform over the next 12 months.
However, I'm going to sit this one out for the time being and wait to see what happens in the upcoming election before making a move.
