JP Morgan has added Centrica, the owner of British Gas, to its Analyst Focus List, arguing the market has overreacted to this year's earnings downgrades.
Analyst Pavan Mahbubani kept his 'overweight' rating on the FTSE 100 energy group and sees 53% upside in the shares.
The focus list highlights the US bank's highest-conviction stock picks.
Mahbubani acknowledged that recent investor conversations had centred on three worries: earnings downgrades, rising bad debts and the threat of artificial intelligence (AI) disrupting the retail energy market.
Downgrades overdone
The downgrades were mostly driven by one-off factors, in JP Morgan's view, while the market is ignoring growth from investment in assets with regulated or contracted earnings.
Those are earnings set by regulators or locked in under long-term contracts, making them more predictable.
Bad debts are a genuine challenge for UK energy suppliers, the broker conceded.
However, Centrica has historically collected unpaid bills better than its rivals, so those charges should ultimately be recovered through allowances in the energy price cap.
On AI, Mahbubani argued that existing competition and thin margins limit the room for disruption.
The concern is that AI agents, software acting on customers' behalf, could hunt out cheaper deals and push more households to switch supplier.
UK energy retailers typically make earnings before interest and tax (EBIT) margins of only 2% to 3%.
AI agents could even prove a net benefit, he suggested.
Cash returns
The shares trade on 12 times forecast earnings.
JP Morgan expects earnings per share to grow about 15% a year between 2026 and 2030.
Over the same period, it estimates Centrica will pay out dividends worth about a quarter of its current market value.
More than £1.5 billion of balance sheet headroom could fund further upside to earnings or shareholder returns.
