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

Gas and oil plant with a inspector in the background.
Energy Shares

Does Macquarie rate Origin Energy shares a buy, hold or sell?

The broker has given its verdict on the energy giant. Let's see what it is saying.

Read more »

An oil worker in front of a pumpjack using a tablet PC.
Energy Shares

Ord Minnett tips Woodside shares to rise 15%+

Market-beating returns could be on offer from this energy giant.

Read more »

Workers inspecting a gas pipeline.
Energy Shares

Woodside share price lifts amid pending $25 billion project extension decision

Woodside shares are pushing higher ahead of a vital government project determination.

Read more »

gas burner alight on a stove
Energy Shares

What does Macquarie think AGL shares are worth?

How bullish is Macquarie on this major energy player?

Read more »

A man in a suit face palms at the downturn happening with shares today.
Energy Shares

Why is the Origin Energy share price sinking 4% today?

Let's find out why investors are hitting the sell button on Monday.

Read more »

A woman holds her finger to the side of her lips in contemplation as she looks upwards to an array of graphic images of light bulbs above her head, one of which is on and glowing.
Energy Shares

Do brokers think the AGL share price is a buy?

Are AGL shares a good investment right now?

Read more »

Cheerful businessman with a mining hat on the table sitting back with his arms behind his head while looking at his laptop's screen.
Energy Shares

With the 8% dividend yield, is the Woodside share price a buy?

Can investors get energised about this stock’s passive income potential?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Energy Shares

Why are ASX uranium stocks rocketing today?

These shares are shining brightly on Friday. Let's find out why.

Read more »