Are AGL shares in the buy zone in September?

Should you be snapping up this energy giant's shares?

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AGL Energy Limited (ASX: AGL) shares are rising on Friday despite the market weakness.

In late trade, the energy giant's shares are up 0.5% to $10.92.

This means the AGL share price is now up 55% over the last 12 months.

Can AGL shares keep rising?

One broker that believes the company's shares have now peaked is Morgans.

According to a recent note, the broker has retained its hold rating with a $10.20 price target.

This implies a potential downside of almost 7% for investors over the next 12 months.

What did the broker say?

Morgans was impressed with AGL's performance in the second half of FY 2023. However, it notes that the company is now facing structurally higher costs and capital expenditures. It feels this could weigh on its earnings in the medium term. The broker explains:

AGL Energy reported a much stronger 2H23 but it is facing structurally higher costs and capital expenditure. For now higher tariffs are supporting higher earnings but we see headwinds returning in the medium term.

And while its analysts acknowledge that a tight electricity market could offset these headwinds, it points out that this would not be sustainable. In light of this, it feels the company's shares have now reached a level that's about fair given its outlook. It adds:

It's possible that the electricity market could tighten further to push prices above their already high levels but we don't believe this is a sustainable business model. We maintain our HOLD rating with a reduced price target of $10.20 and 12-m potential TSR of -4%.

It is worth noting that not everyone agrees with Morgans. The team at UBS believes AGL shares are still a buy and has a price target of $12.15 on them. This suggests a potential upside of over 11% for investors from current levels.

Time will tell which broker makes the right call.

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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