AGL share price dips as $20b price tag flagged for coal exit

AGL is exiting coal fired generation earlier than planned…

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The AGL Energy Limited (ASX: AGL) share price is trading lower on Thursday.

In morning trade, the energy company's shares are down 0.6% to $6.56.

This compares to a stunning gain of 1.9% by the S&P/ASX 200 Index (ASX: XJO).

Why is the AGL share price underperforming?

The AGL share price is underperforming on Thursday after investors gave a lukewarm response to the company's strategic review update.

That update revealed that AGL is aiming for an accelerated exit from all coal fired generation.

This will see the company look to close the Loy Yang A Power Station up to 10 years earlier than previously announced.

Management expects this and others actions to reduce its greenhouse gas emissions from 40 million tonnes to net zero.

However, this will come at significant cost, which appears to have spooked investors today.

To achieve its goals, AGL advised that it will progressively decarbonise its asset portfolio with new renewable and firming capacity. This will require a total investment of up to $20 billion by 2036. This is expected to be funded from a combination of assets on AGL's balance sheet, offtakes, and partnerships.

Are AGL's shares a buy?

One broker that sees a lot of value in the AGL share price at present is Morgans.

Its analysts currently have an add rating and $8.63 price target on the company's shares. This implies potential upside of 30% over the next 12 months.

However, it is worth noting that the broker has not yet responded to today's update and will no doubt be busy assessing how these plans impact its earnings estimates and valuation.

So, investors may want to sit tight and keep their powder dry until Morgans has reassessed the company.

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 Scott Phillips.

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