Glencore PLC (LSE:GLEN) has received the backing of the research team from Barclays, with analysts painting a scenario where shares in the company could double from current levels.
Barclays set a 700p price target and reiterated its 'outperform' rating on the diversified natural resource company which reported record interim profits in August.
A tight thermal coal market and efforts to secure alternative energy units should underpin higher-for-longer coal prices and the investment case for the company, Barclays said.
The broker said it estimates Glencore is pricing in a coal price of $53-69 per tonne and said its upside coal price scenario could see the shares double from current levels.
The upside scenario is based on a five-year time frame for European investment in renewables and liquid national gas capacity plus limited global capability to revive thermal coal production leading to five years of supernormal pricing - with a five-year average of $396 per tonne.
In that scenario, Barclays said Glencore's share price could double (+104%) from current levels to 1,000p, incorporating a 15% assumed discount to net present value.
Even in its downside coal price scenario - 5-year average of $92 per tonne - Barclays still sees upside potential from the current share price of 21% to 590p.
Barclays predicts that the shift in European energy policy will underpin higher-for-longer coal prices as concerns over energy security intensify, particularly following the recent curtailment of Russian gas imports, and as efforts to secure alternative energy units are ramped up.
With spot EU coal price - $331 per tonne - trading at a 61% discount to the coal equivalent gas price - $838 per tonne - the incentives for utilities to switch to coal power generation look attractive.
This implies significant headroom for coal prices to move higher, given a still-tight high-quality thermal coal market, the broker said.
The company remains its top pick in the sector, Barclays said.
In August, Glencore said underlying earnings more than doubled to $18.9bn in the first half of the year, as basic earnings per share increased ninefold to $0.92 and turnover rose by 43% year-on-year to $134bn.
The group also unveiled a $3bn buyback programme, saying that may continue until the 2022 full-year results are announced in February 2023.