The Origin Energy Ltd (ASX: ORG) share price has been a disappointing performer in 2021.
Since the start of the year, the energy company's shares have gained just 1%.
Is the Origin share price good value?
While the underperformance of the Origin share price has been disappointing, one leading broker appears to see it as a buying opportunity.
According to a recent note out of Morgans, its analysts have an add rating and $5.96 price target on the company's shares.
Based on the current Origin share price of $4.88, this implies potential upside of 22% over the next 12 months.
In addition, Morgans is forecasting a 13 cents per share dividend in FY 2022. This implies a 2.7% yield, bringing the total return on offer to approximately 25%.
Why is Morgans bullish?
Morgans notes that Origin has recently agreed to sell 27% of its stake in the APLNG business to EIG for $2.1 billion. Its analysts believe the deal points to expectations of a stronger for longer energy market.
The broker commented: "We estimate that the implied EV of APLNG is ~A$28.2bn or ~A$15/MMboe of 2P reserves. To get to that valuation we think a long term (post 2024) real price of oil of more than USD75/bbl is needed. Given that EIG will hold a minority stake and that the JV's LNG is almost entirely sold under long term contract we presume that EIG's view is for sustained strength in LNG markets."
All in all, the broker feels this highlights a disconnect between the Origin share price and commodity prices. Something which it thinks investors should be looking to take advantage of.
Morgan concludes: "We still see a disconnect between commodity prices and the share prices of oil and gas stocks. We think there is value to be realised as the market regains confidence in the sector and in ORG in particular with a strengthened and stable balance sheet. We retain our ADD rating and see 14% [now 25%] potential 12-m TSR with upside beyond that should oil prices remain elevated."
