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Berenberg upgraded British Gas owner Centrica Plc on Monday to 'buy' from 'hold' and lifted the price target to 155p from 130p.
The bank said Centrica's strong balance sheet, with nearly £3bn of net cash, continues to afford it optionality, which leads it to a more constructive view of the investment case.
Berenberg said the upgrade was supported by its expectation that the group will use £1bn of its cash to extend its share buyback programme.
"The buyback helps to ease the effect of a commodity-driven normalisation of profits through the coming years, and leads us to increase our earnings per share forecasts by 13% on average for 2024E-2026E, expanding Centrica's valuation discount to the sector (7.3x/10.5x price-to-earnings and 3.4%/3.9% yield for 2024E/25E)," it said.
"While we expect the discount to remain, we expect it to narrow, which is a view that is also supported by our discounted cash flow-based sum-of-the-parts and DDM models."
At 0850 BST, the shares were up 2.8% at 138.73p.