Why this broker sees the Santos (ASX:STO) share price jumping 20%

Oil worker drilling on the oil field

The Santos Ltd (ASX: STO) share price has been a very positive performer on Tuesday after oil prices charged higher.

In afternoon trade, the energy producer’s shares are up 6% to $7.14.

Can the Santos share price keep rising?

The good news is that one leading broker believes the Santos share price can continue to rise from here.

According to a recent note out of Morgans, its analysts have an add rating and $8.55 price target on the company’s shares.

Based on the current Santos share price, this implies potential upside of 20% over the next 12 months excluding dividends.

Morgans is also forecasting a fully franked dividend of 13.3 cents per share, which represents a modest but attractive 1.9% yield.

What did the broker say?

Santos is the broker’s top large cap pick in the energy sector. This is due to its growth prospects and diversified earnings base.

It commented: “We expect the resilience of STO’s growth profile and diversified earnings base see it best placed to outperform against a backdrop of a continuing broader sector recovery. While pre-FEED, we see Dorado as likely to provide attractive growth for STO, while its recent acquisition increasing its stake in Darwin LNG has increased our confidence in Barossa’s development. PNG growth meanwhile remains a riskier proposition, with the government adamant it will keep a larger share of economic rents while operator Exxon has significantly deferred growth plans across its global portfolio.”

In addition, the broker is bullish on the Santos share price due to its positive view on the proposed merger with Oil Search Ltd (ASX: OSH).

Its analysts said: “STO remains our top preference amongst our large-cap energy universe. With early indications supportive of our view that material synergies and enhanced growth plans will result from the OSH merger. While in good shape, we expect STO to continue gaining investor support as it executes on the opportunistic OSH merger. We maintain our ADD rating.”

The post Why this broker sees the Santos (ASX:STO) share price jumping 20% appeared first on The Motley Fool Australia.

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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 no position in any of the stocks mentioned. 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 Bruce Jackson.

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