The Origin (ASX:ORG) share price has only gained 1% so far this year. Is it a buy?

Is this energy share a buy?

| More on:
Oil miner holding a laptop and mobile phone looks at his phone and sees the falling oil price and falling Woodside share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.”

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

A white and black clock with the words Time to Buy in blue lettering representing the views of two experts who say it's time to buy these ASX shares
Broker Notes

Brokers name 3 ASX shares to buy today

Brokers are bullish on these ASX shares...

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Broker Notes

Could the ANZ share price really offer more than 20% upside?

Brokers tip the ANZ share price will regain its first-half losses and then some.

Read more »

two children squat down in the dirt with gardening tools and a watering can wearing denim overalls and smiling very sweetly.
Consumer Staples & Discretionary Shares

‘Back to a growth mindset’: Expert names ASX share ready to take off

In just two years this business overcame devastation and is now ready to grow again, reckons this fund manager.

Read more »

A doctor appears shocked as he looks through binoculars on a blue background.
Broker Notes

Goldman Sachs gives its verdict on the CSL share price

Where next for CSL's shares?

Read more »

A man in a business suit scratches his head looking at a graph that started high then dips, then starts to go up again like a rollercoaster.
Dividend Investing

‘Misunderstood’: Expert names dividend ASX share to buy now at price dip

Reliable income producers aren't easy to find. Here's a stock that is cheap enough to pick up at the moment…

Read more »

A business woman looks unhappy while she flies a red flag at her laptop.
BNPL shares

Top broker warns that the Zip share price could sink 43%

Are Zip's shares heading lower from here?

Read more »

A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend
Bank Shares

Is the CBA share price a buy after the bank’s FY22 results?

Is now a good time to buy CBA's shares?

Read more »

Three people run in a race through deep mud and puddles of water.
Investing Strategies

3 rising ASX shares to buy that have passed the bottom: expert

Grab these recovering stocks before they become even more expensive, says Michael Gable.

Read more »