Shares in power generator Drax Group (LSE:DRX) PLC rose 2.5% on Tuesday after analysts at Jefferies International raised their price target for the power generator's shares to 800p from 650p and reiterated a 'buy' recommendation.
They said Drax's strong balance sheet and cash flow generation, combined with a discounted valuation, make it an attractive risk-reward relative to its peers.
The US investment bank's analysts also see potential future upside in Drax's Bioenergy with Carbon Capture and Storage (BECCS) plans, but noted that more clarity is needed over the revenue framework.
Record high power prices have underpinned Drax's outperformance in 2022, with the stock set to end the year up 15%.
However, the Jefferies analysts believe that the earnings benefit from higher power prices is now well reflected in consensus.
They have increased their net generation EBITDA forecasts for Drax, leading to the increased price target. If Drax were to reach the new target, it would trade at a multiple of 3.8 times Jefferies' one-year forward EV/EBITDA, significantly below its 5-year average of 5.2 times.
In early trade, Drax stock was up 17.4p at 720.5p.