AGL Energy (ASX:AGL) Valuation in Focus as Liddell Battery and Palmer Wind Deals Signal Transition Progress

AGL Energy (ASX:AGL) is making tangible moves in its transition away from coal, as its 1,000MWh Liddell battery energy storage system moves into commissioning and a new agreement secures a large share of output from the future Palmer Wind Farm.

See our latest analysis for AGL Energy.

AGL Energy’s shares have shown only modest movement recently, with short-term share price returns fairly flat. At the same time, momentum from its clean energy initiatives continues to build. Over a longer view, the total shareholder return remains mostly unchanged over the past year, which suggests that investors are still weighing the company’s transition progress against ongoing industry risks and opportunities.

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But with substantial renewable investments now underway and shares trading at a significant discount to analyst price targets, an important question arises: is AGL undervalued, or has the market already factored in the company’s future growth potential?

Most Popular Narrative: 23.7% Undervalued

With AGL Energy shares last closing at A$9.09 and the widely-followed consensus narrative assigning a fair value of A$11.91, there is a striking gap between current price and perceived potential. This difference has sparked debate: is the market missing the scale of change underway, or has it spotted risks the narrative underplays?

Significant investment in grid-scale battery developments and firming capacity is positioning AGL to capture revenue and earnings growth as electricity demand rises from electrification of homes, industry, and transport. As these assets come online through FY26 to FY28, they are expected to more than offset the decline in coal and gas earnings from asset retirements and contract expiries, supporting future EBITDA growth and earnings stability.

Read the complete narrative.

Want to know what's beneath this bullish outlook? The narrative hinges on rapid growth in new energy segments and a big leap in profit margins. Think future cash flows, growth bets and a projected earnings jump. Curious which financial dominoes have to fall for the price target to be reached? Dig deeper for the full financial story.

Result: Fair Value of $11.91 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, heavy capital spending and mounting competition in retail could limit profit gains. This may leave future earnings more uncertain than the narrative suggests.

Find out about the key risks to this AGL Energy narrative.

Another View: Discounted Cash Flow Gives a Different Outcome

While analyst forecasts suggest upside based on profit growth and multiples, our SWS DCF model presents a much more conservative picture. It estimates AGL’s fair value at just A$4.05, which is well below the current share price. Does this significant gap signal market optimism or potential risk?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out AGL Energy for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own AGL Energy Narrative

If you have a different perspective or want to dig into the numbers on your own terms, crafting your own view of AGL takes just minutes. Do it your way

A great starting point for your AGL Energy research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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