Upgraded: Buy this ASX 100 stock to leverage the energy transition megatrend

Goldman Sachs thinks investors should be snapping up this stock now.

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The world is currently going through a major transition to clean energy.

And while there are many ways to gain exposure to this megatrend, one that investors may be overlooking is Worley Ltd (ASX: WOR).

That's the view of analysts at Goldman Sachs, which have just upgraded the ASX 100 stock on the belief that it will benefit greatly from the energy transition.

What is Worley?

Worley is a global engineering company that provides engineering design and project delivery services. This includes providing maintenance, reliability support services, and advisory services to the energy, chemical and resources sectors.

It is the ASX 100 stock's exposure to the energy sector that is getting Goldman most excited. It explains:

WOR remains well-placed to benefit from the energy transition. Notwithstanding some near term deceleration in our estimates, we believe WOR's outlook remains positive supported by customer capex with investments in 1) Energy security; 2) Energy affordability; and 3) Sustainability.

WOR noted that in some cases energy transition project economics were currently challenged, but overall customer capex is still being deployed and WOR is able to capture spend in its traditional business. Our assessment of consensus (Factset) forecast for select customer capex forecasts shows continued upgrades and importantly, peer margin forecasts have also been revised higher.

Buy this ASX 100 stock

In light of the above and with the ASX 100 stock down 14% year to date, Goldman feels now is the time to pounce on Worley's shares.

According to the note, the broker has upgraded its shares to a buy rating with a $17.50 price target. Based on its current share price of $15.07, this implies potential upside of 16% for investors over the next 12 months.

In addition, the broker is expecting dividend yields of 3.5% in FY 2024 and then 3.9% in FY 2025.

Commenting on the upgrade, the broker said:

WOR's average NTM premium to peers is now back in line with the 3yr average of 11% (noting that our 12m TP is based on this relativity sustaining for NTM+1 earnings). Vs the S&P/ASX 200, WOR is trading broadly in line with market vs a 3yr average premium of 26% (5yr average of 9%). We view the recent decline in WOR's share price (-6% over the last 6 months vs +11% for ASX200) relative to the market as a buying opportunity, without an impact to our fundamental valuation. Our DCF & EV/EBIT based TP (methodology unch.) increases 1% to $17.50 which provides 16% potential upside vs our coverage median of ~9%.

Overall, this could make it a good option if you're wanting exposure to the clean energy thematic.

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 positions in and has recommended Goldman Sachs Group. 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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