British Gas owner Centrica (LSE: CNA) has seen its share price slide 20% in the past 12 months. The stock has lost some of its recovery from the depths of the 2020 stock market crash. But the price is still way below the heights of 2013 and 2014.
Right now, analysts are bullish about Centrica shares. So am I.
What the forecasts say
First up, the bad news. Forecasts show earnings per share (EPS) continuing to fall through to 2026. That can put a real downer on sentiment towards a stock, especially when it’s open-ended like it is now. Until a year rolls into view with some sort of recovery on the cards, I reckon investors could stay away.
But my feeling is that the very low forecast valuation could draw a line under the decline. And to me the share price outlook’s positive.
Low valuation
Even with three years of EPS falls on the cards, we’d still be looking at a low price-to-earnings (P/E) ratio of 9.5 based on 2026 forecasts. That’s from 6.5 on this year’s outlook. And it’s with a predicted dividend yield of 3.4% this year, which could grow to 4.5% on 2026 forecasts.
There’s a danger of more share price weakness if we don’t see any predictions of an earnings rise in 2027. And I suspect that means a lot of today’s bearish investors could wait until we see at least one more year before they’ll reconsider.
But there’s a strong analyst Buy consensus at the moment. Of 15 forecasting, 11 back a Buy rating, while the other four have Centrica on Hold. That leaves none suggesting Sell.
What really counts
Brokers have an average price target of 167.7p on Centrica now, for a 39% increase from current levels. That does need to be treated with caution, along with earnings forecasts.
For thoughts closer to home, we need to look at how the company’s actually performing. And 2024 interim results showed, well, a pretty disastrous year with profits and cash flow tumbling.
Long term, we have to deal with declines in fossil fuels. Centrica, through British Gas, offers electricity too. And that’s how all that green energy ends up being delivered. You lose some, you win some.
Back to normality
The move to carbon neutrality will need a fair bit of investment, and that could act as a drag on the Centrica share price for a few more years. Still, the company did have £3.2bn in net cash at 30 June, which should be a big help.
The whole energy sector’s had a few turbulent years, and I don’t expect calm normality any time soon. But I think things have to stabilise eventuality so this one is worth considering. Despite the short-term risks now, I think I could look back on late 2024 as a great time to have bought.
Or maybe early 2025, as that’s when I should next have some cash to invest.
This post was originally published on Motley Fool
