‘Resilient growth profile’: Why this broker is tipping Santos shares to outperform

An oil refinery worker stands in front of an oil rig with his arms crossed and a smile on his face as the Woodside share price climbs today

An oil refinery worker stands in front of an oil rig with his arms crossed and a smile on his face as the Woodside share price climbs todaySantos Ltd (ASX: STO) shares haven’t been immune to the past week’s selling action.

But despite dropping 8% over the past five days, the S&P/ASX 200 Index (ASX: XJO) energy company remains up 22% year-to-date.

At the current price of $8.03 per share, Santos has a market cap of $27.1 billion.

But according to analysts at Morgans, those numbers are likely to head higher over the next 12 months.

Diversified earnings base to drive outperformance

Santos shares make it on the top 12 ASX 200 shares that Morgans believes “offer the highest risk-adjusted returns over a 12-month timeframe supported by a higher-than-average level of confidence”.

With its focus on oil and gas production and exploration, Santos also lists among the broker’s most preferred sector exposures over the coming year.

Andrew Tang, equity strategy analyst at Morgans, explained why Santos shares made the top 12 list on Livewire.

According to Tang:

We expect the resilience of Santos’ growth profile and diversified earnings base see it best placed to outperform against a backdrop of a broader sector recovery. While pre-FEED, we see Dorado as likely to provide attractive growth for Santos, while its recent acquisition increasing its stake in Darwin LNG has increased our confidence in Barossa’s development.

One area Tang recommends keeping a close eye on is its operations in Papua New Guinea.

“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,” he said.

How have Santos shares performed longer term?

Santos shares have not only outperformed year-to-date, but they’ve also smashed the benchmark returns over the past five years, gaining 164%. By comparison, the ASX 200 is up 15% over that same period.

At current prices, Santos shares pay a 2.3% trailing dividend yield, 70% franked.

The post ‘Resilient growth profile’: Why this broker is tipping Santos shares to outperform appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben 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 Scott Phillips.

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