The AGL Energy Limited (ASX: AGL) share price closed 2.7% higher on Wednesday. The utilities share finished trade at $8.37 a share.
Top broker JP Morgan says the company has the most to gain from increased wholesale electricity prices.
According to a report in the Australian Financial Review (AFR), JP Morgan has upgraded its guidance on AGL Energy from neutral to overweight.
It has also increased its 12-month share price target for AGL from $9.15 to $10.60.
Why JP Morgan is bullish on the AGL share price
Analyst Mark Busuttil said, "higher wholesale prices have a material impact on earnings and value".
JP Morgan projects average wholesale electricity prices of $208 per megawatt hour in 2022. This is a 93% upgrade. The broker also projects $179 per megawatt hour in 2023 (a 92% upgrade) and $116 per megawatt hour in 2024 (up 45%).
Busuttil said the key risk is operational, with an increasing likelihood of unplanned outages at baseload plants.
AGL has endured extended outages at its Loy Yang A coal power plant in Victoria.
Net profits to grow exponentially
JP Morgan now forecasts AGL Energy to earn a net profit of $239 million in FY22. It is tipping a net profit of $555 million in FY23 and $1.32 billion in FY24.
The broker acknowledges that today's commodity prices are not sustainable.
However, "the challenges in addressing current constraints mean that we expect elevated prices for some time".
The AGL share price is up 36% in the year to date.
