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.
The post The Centrica share price is down 20% in 12 months. I think it might have hit bottom appeared first on The Motley Fool UK.
5 Shares for the Future of Energy
Investors who don’t own energy shares need to see this now.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.
While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.
Open this new report — 5 Shares for the Future of Energy — and discover:
Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
How to potentially get paid by the weather
Electric Vehicles’ secret backdoor opportunity
One dead simple stock for the new nuclear boom
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
More reading
With a P/E of only 4.8, here’s the Centrica share price forecast
A tale of 3 FTSE income stocks: one I love, one I want, and one I won’t touch
With a P/E ratio of just 3.76, is this FTSE 100 stock an undervalued gem?
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
