Origin Energy Ltd (ASX: ORG) and AGL Energy Limited (ASX: AGL) are two of Australia's largest energy companies.
But only one of them represents a good investment option right now according to the team at Morgans.
Origin shares are a buy
According to the note, the Morgans thinks investors should be buying Origin shares over AGL shares right now.
This week the broker put an add rating and $6.44 price target on the company's shares. Which, based on the current Origin share price of $5.82, implies potential upside of almost 11% over the next 12 months.
In addition, its analysts expect a 12-month fully franked dividend yield approaching 5% to sweeten the deal even further.
As a comparison, Morgans has a hold rating and $7.24 price target on AGL's shares. Which is a touch lower than the current AGL share price of $7.28.
Why Origin over AGL?
Morgans sees AGL as a difficult investment proposition at present.
It notes: "AGL remains a difficult investment proposition ahead of its demerger with its component parts likely to attract investors who have environmental priorities that are at polar opposites."
As for Origin, the broker was pleased with its recent update and $250 million on-market share buyback. It also believes the company's APLNG business is well-placed to generate robust cash flows that underpin strong dividends.
Its analysts explained: "ORG is looking to farm down interest in its Beetaloo basin tenure and has reiterated steady production targets for APLNG. It is also taking a selective approach to Energy Markets investment. We therefore see limited growth opportunities for the company but equally limited need to spend capital. Our outlook for commodity prices suggests ORG could sustain strong dividends in the medium term. We maintain our ADD rating and see 10% upside to our valuation on today's closing price and potential dividend yield of 5% giving forecast 12-m TSR of 15%."
