Broker says Santos shares can rise 40% in 12 months

Let's see why the broker is bullish on this name right now.

| More on:
A smiling businessman in the city looks at his phone and punches the air in celebration of good news.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Santos Ltd (ASX: STO) shares could be heading a lot higher from here.

That's the view of one leading broker, which thinks that the energy giant's shares are seriously undervalued right now.

What is being said about Santos shares?

Analysts at Goldman Sachs have been running the rule over the company's quarterly update and were pleased with what they saw. They said:

STO reported 21.9 mmboe production 4% above our estimates on higher throughput at PNG, and reiterated that growth projects Barossa and Pikka remain on schedule and budget which are key to driving a significant FCF inflection from 2026.

5 Barossa wells have now been drilled and flowed back where early production testing indicates reservoir properties at the higher-end of pre-drill expectations, offshore pipeline tie in to Darwin LNG is progressing alongside SURF installation awaiting FPSO hook-up for first gas in 3Q25. The BW Opal FPSO remains in Singapore for pre-commissioning activities ahead of tow away expected shortly.

Big return potential

In light of the above, the broker remains very positive on Santos shares and is urging investors to buy them while they are down.

According to the note, Goldman has retained its buy rating on its shares with an improved price target of $7.85. Based on its current share price of $5.61, this implies potential upside of 40% over the next 12 months.

To put that into context, a $10,000 investment would turn into $14,000 by this time next year if Goldman is on the money with its recommendation.

And that doesn't include dividends! The broker is forecasting a 12 US cents per share dividend in FY 2025 and then a 29 US cents per share dividend in FY 2026. This equates to 3.3% and 8% dividend yields, respectively.

Goldman concludes by highlighting three key reasons why it is bullish on Santos shares. It said:

We are Buy rated on STO on: Attractive valuation: Trading at ~0.8x NAV, with ~40% of growth projects comprising our NAV we see lower risk of schedule delays and capex increases eroding our valuation. Strong near term production growth: Start-up of Barossa expected in 2H25 and Pikka in early 2026 provide a ~30% production uplift or 10% production CAGR over 3 years, providing earnings momentum to offset softening global gas prices. Improving returns: Trading on a ~14% 2026E FCF yield which could support at least an 8% dividend yield paid out of STO revised FCF return policy as key growth projects Barossa and Pikka begin contributing to earnings.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Energy Shares

Multiracial happy young people stacking hands outside - University students hugging in college campus - Youth community concept with guys and girls standing together supporting each other.
Energy Shares

Which ASX 200 uranium stock is surging on huge news

Let's see why investors are bidding this stock higher today.

Read more »

Oil rig worker standing with a clipboard.
Economy

What does the changing oil price mean for the ASX 200?

Oil continues to wobble with the tensions seen on the world stage.

Read more »

Australian notes and coins symbolising dividends.
Energy Shares

Tempted by the big dividend yields on ASX energy shares? Here's why you should think again

The income from these stocks might not be as good as it seems.

Read more »

A man looking at his laptop and thinking.
Energy Shares

Up 100% since April, why is this ASX 300 uranium stock plunging today?

The ASX 300 uranium miner has come under heavy selling pressure on Thursday. But why?

Read more »

Excited couple celebrating success while looking at smartphone.
Energy Shares

Paladin Energy share price races higher on big announcement

Let's see why this uranium producer's shares are charging higher today.

Read more »

Oil worker using a smartphone in front of an oil rig.
Share Market News

ASX 200 up strongly while energy shares plummet on ceasefire news

ASX 200 energy shares are tumbling with Karoon Energy and Woodside Energy the biggest fallers.

Read more »

An oil worker assesses productivity at an oil rig as ASX 200 energy shares continue to rise.
Share Market News

ASX 200 energy shares lead for the second week as world awaits US decision on Iran

ASX energy shares lifted 5.31% while the ASX 200 fell 0.49% amid the US President contemplating strikes.

Read more »

Copal miner standing in front of coal.
Energy Shares

What happened to Coronado Global Resources shares on Friday?

The ASX coal miner announced new funding this week.

Read more »