Which does Macquarie prefer out of AGL and Origin?

AGL Energy Ltd (ASX: AGL) and Origin Energy Ltd (ASX: ORG) have both had a pretty lacklustre past 12 months from a share price perspective, but you could argue they earn their place in a long-term portfolio given their decent dividend yields.

Macquarie has just released new research reports on each and has a slight preference for one over the other.

Let’s start by having a look at what they’re saying about AGL Energy shares, which they have an underperform rating on.

Challenging energy markets

The broker said in its new research note that the fundamentals for AGL remain challenging, with negligible growth in demand across the national electricity market, noting that AGL’s coal fleet generation was down 12% in New South Wales and 15% in Victoria.

Macquarie is predicting power price declines in FY27 and said, “Without volatility, profitability for not only the assets like batteries but also gas plants will come under pressure as arbitrage and trading revenue shrinks”.

Macquarie added:

AGL remains in an FY28 downgrade cycle. Recent improvements in power prices may moderate the pace, but it remains material. Volatility remains low due to battery penetration and weather conditions, and without it, battery earnings will also be lower.

Macquarie has a 12-month price target of $8.10 on AGL shares compared to $8.51 at the time of writing.

They are predicting a 5.8% dividend yield this financial year, then dropping to 3.6%, then 2.8%.

AGL is valued at $5.7 billion.

Origin the better of the two

Meanwhile, the broker has a neutral rating on Origin Energy shares.

They said the first quarter of FY27 appeared to have been a strong one for LNG production from the APLNG plant in Queensland and added that strength in the oil price was also a tailwind.

They said:

Oil price remains a positive for ORG … with the result being FY27 average should be ~US$100/bbl which translates to a revenue outcome nearly as good as the peak year of FY23. The strength of the cashflow in FY27 we think should be able support a sustained increase in ORG dividend to at least $0.62 per share.

Macquarie said Origin would be impacted by the higher cost of coal, while gas might also be a surprise source of weakness.

They added:

APLNG is providing ample cashflow, electricity market looking a little better, but this is framed within the context of a weak FY28. Upside is El Niño weather pattern creates volatility, re-igniting cap prices and gas/battery earnings. Risk remains that the oversupply in electricity market prevails, lasting until FY30.

Macquarie has a price target of $11.10 on Origin shares compared with $11.26 at the time of writing.

Macquarie is predicting a 5.7% dividend yield this financial year, which they expect to moderate to 5.5% next year.

Origin is valued at $19.6 billion.

The post Which does Macquarie prefer out of AGL and Origin? appeared first on The Motley Fool Australia.

More reading

• ASX 200 defensive sectors outperform amid volatile trading
• How much superannuation do I need to generate $100,000 per year in passive income?
• AGL, Cochlear, WiseTech shares: Buy, hold, sell
• How much passive income can I earn from a $950,000 superannuation balance?
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Cameron England 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 Macquarie Group. The Motley Fool Australia has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.