Centrica share price is recovering: is it a good energy stock to buy?

Centrica (LON: CNA) share price has bounced back this month. It has risen for three straight weeks and is hovering at its highest level since January 15th. It rebounded by over 20% from its lowest point in April.

Strong cash generator

Centrica is one of the biggest energy companies in the UK and Europe. It owns British Gas, a company that provides gas and electricity to millions of customers in the UK. It is also involved in the offshore energy production, where it produces oil and gas through its ownership of Rough.

Additionally, the company provides nuclear energy and is a major player in the power trading industry in Europe. Power trading involves buying and selling gas and LNG from the source to its clients. Its traders execute thousands of power trades each day.

Centrica’s business has more elements like the provision of services like home repairs and heat energy installations. All these businesses make Centrica one of the biggest firms with a market cap of over £7.8 billion.

Centrica’s business is doing well. Its recent annual results showed that its adjusted operating profit came in at £2.8 billion while its statutory operating profit came in at £6.5 billion. Most importantly, its free cash flow was £2.2 billion, down from the £2.5 billion it made a year earlier.

Centrica has a robust balance sheet with over £2.7 billion in cash. Most recently, it boosted its cash holdings by raising £405 million through a hybrid bond issuance. The first call will come in 2030 and its maturity will be in 2055.

The next important catalyst for Centrica is its upcoming annual general meeting scheduled for June 5th. In it, the management will explain its priorities as signs show that its business is slowing and its stock is undervalued. It trades at a price-to-earnings ratio of 2.1, while most utilities have a multiple of over 10. The company will then publish its interim financial results on July 7th.

Centrica share price forecast

CNA chart by TradingView

The weekly chart shows that the CNA stock price bottomed at 123.40p in April and has now bounced back to over 150p. It has jumped above the 23.6% Fibonacci Retracement level and the 50-week moving averages.

Also, the Relative Strength Index (RSI) has drifted upwards and moved above the neutral point of 50. The MACD and the recent Average Directional Index (ADX) retreat has faded. Therefore, the outlook for Centrica is bullish, with the next point to watch being the year-to-date high of 172p.