S&P/ASX 200 Index (ASX: XJO) energy stock AGL Energy Ltd (ASX: AGL) is marching higher today.
AGL shares closed yesterday trading for $9.14. In morning trade on Friday, shares are changing hands for $9.25 apiece, up 1.2%.
For some context, the ASX 200 is up 0.6% at this same time.
This follows news of a major investment in the Western Australia energy market.
Here's what's happening.
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ASX 200 energy stock invests in firming capacity
AGL shares are in the green after the company reported that it has entered into an agreement to buy four new gas turbines from Siemens AB.
AGL will pay around $185 million for the gas turbines as part of the development of the Kwinana Swift Gas 2 project.
The ASX 200 energy stock is reported to be making the investment after the Australian Energy Market Operator (AEMO) assigned 176MW of Peak Certified Reserve Capacity to the project, commencing from 1 October 2027.
AGL said it recognises the need for new firming capacity. These include batteries, gas peakers and pumped hydro to support the energy transition. And while gas fired power generation remains controversial, AGL said the project will help reduce the reliance on coal fired power.
The company stated:
Subject to Final Investment Decision, the project strengthens AGL's strategy to develop new firming capacity to provide back-up capacity to support the build out of renewables and bolsters AGL's portfolio in Western Australia.
This project would also assist the Western Australian government's commitment to retire all state-owned coal fired generation by 2030.
Are AGL shares a good buy today?
With today's intraday factored in, AGL shares remain down 11.4% over 12 months.
Though that's not including the 48 cents a share in fully franked dividends the ASX 200 stock paid out over the full year. At the current share price, AGL trades on a fully franked trailing dividend yield of 5.2%.
As for the year ahead, in September Macquarie Group Ltd (ASX: MQG) reaffirmed its outperform rating on AGL shares. The broker also raised its price target to $11.00 a share.
That represents a potential upside of 19% from current levels. And it doesn't include those two upcoming FY 2026 dividends.
Commenting on AGL's valuation and dividend yield, Macquarie noted:
AGL's valuation is increasingly attractive as the PE [price to earnings ratio] de-rated over the FY25 result. Forward PE at 9.3x is 2 SD [standard deviations] below the long-term average and at ~55% discount to industrials. Yield is ~6% fully franked and sustainable.
