Is the Santos share price in bargain territory for FY23?

The Santos Ltd (ASX: STO) share price is having a poor day on Wednesday.

In morning trade, the energy producer’s shares are down 1% to $6.89.

This means the Santos share price is now down 7% since the start of the financial year.

Where next for the Santos share price in FY23?

While the Santos share price may have started the new financial year in poor form, one leading broker believes that could change.

According to a note out of Morgans, the broker has retained its add rating but trimmed its price target to $9.30.

This implies potential upside of 35% for investors over the next 12 months from current levels.

What did the broker say?

While Morgans is cautious on the near term, it believes that recent weakness has created a buying opportunity for investors.

It commented:

Our conviction level on the short-term direction of oil prices is at a 2-year low. This uncertainty is not driven by any breakdown in oil market fundamentals, but rather the risk to prices that can be delivered by faltering sentiment on demand.

This is due to concerns about global economic growth and “China’s ability to defend itself against COVID.”

While the above factors could well dent some 2H22 demand growth expectations we also see there being a reasonable probability that equity markets overreact moving ahead of any further volatility. Which could generate new buying opportunities at more attractive levels.

Where are oil prices heading?

Ultimately, whether the Santos share price rises or falls will be largely down to what happens with oil prices.

The good news is that Morgans is now forecasting higher oil prices over the coming years. It explained:

We have made a number of upgrades to our oil price forecasts. 2022 now US$102/bbl (was US$91/bbl), 2023 now US$89.5/bbl (was US$78/bbl), 2024 now US$78.5/bbl (was US$66/bbl), 2025 now US$68/bbl (was US$62/bbl), 2026 now US$65/bbl (was US$62/bbl), and a new long-term real price assumption of US$ 65/bbl (was US$62/bbl).

Overall, the future looks reasonably bright for the Santos share price based on these assumptions and its growth opportunities.

The post Is the Santos share price in bargain territory for FY23? 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 Scott Phillips.

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