Why the Santos Ltd share price is racing higher today

The strong run of the Santos Ltd (ASX: STO) share price has continued today with a further 2.5% gain to $4.17.

This brings the oil and gas company’s three-month return to an impressive 42%.

Why are its shares higher today?

Although Santos’ shares were likely to have been given a lift from oil prices rising overnight for the third consecutive session, I suspect the main driver of today’s gain is a broker note out of the equities desk at Macquarie.

That note revealed that the broker has retained its outperform rating and increased the price target on its shares to $4.60.

According to the note, Macquarie expects Santos to benefit from the shutdown of two trains at the Queensland Curtis LNG Project.

As a result, it expects Santos to hit the top end of its full-year sales guidance, allowing it to deliver a strong FY 2017 result which comfortably beats the market’s expectations.

Should you invest?

I continue to believe that Santos is one of the standout investment options in the resources sector at the moment and would choose it ahead of rivals Woodside Petroleum Limited (ASX: WPL) and Oil Search Limited (ASX: OSH).

I believe the hard work that management has done to cut costs will result in bumper free cash flow growth in FY 2017 and FY 2018, ultimately putting it in a position to consider paying a dividend once again. Just as long as oil prices remain favourable, of course.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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