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Why brokers think you should buy the slumping Woodside Petroleum share price today

The Woodside Petroleum Limited (ASX: WPL) share price tumbled for the third consecutive day to its lowest level this month, but brokers think the weakness is a buying opportunity.

Shares in the ASX energy stock slumped 1.4% to $20.66 on Thursday when the S&P/ASX 200 Index (Index:^AXJO) fell 0.8%.

In contrast, its peers are faring better. The Oil Search Limited (ASX: OSH) share price jumped 1.3% to $3.14, while the Beach Energy Ltd (ASX: BPT) share price added 1% to $1.51.

Big write-down hurts confidence

Sentiment towards the Woodside share price took a hit after management revealed it would write-down the value of its assets by US$3.9 billion ($5.6 billion).

This is largely due to the slump in oil and gas prices, as well as the uncertain demand outlook due to the global COVID-19 pandemic.

Baby and bathwater

But brokers like JP Morgan aren’t put off. In fact, it reiterated its “overweight” (meaning buy) recommendation on the stock.

“We believe Woodside’s strong operating performance for the quarter has been somewhat lost following weak realized prices and the asset impairments that were announced,” said the broker.

JP Morgan’s price target on the stock is $25.70 a share.

It isn’t along in feeling bullish about Woodside. Goldman Sachs also came out swinging for the stock.

Weak sales overshadows strong production

Woodside posted a record second quarter production of 25.9 million barrels of oil equivalent in the second quarter of 2020 but revenue was below the broker’s expectation. This is because Woodside sold a greater amount of LNG at the weak spot price.

“Our global team expects LNG spot prices to rebound from here, where we assume a [long-term] price of US$7.25/mmbtu,” said Goldman.

“We maintain a Buy rating and highlight the business is well positioned versus ASX peers to ride out the low oil price environment and to continue to invest in future growth for the portfolio.”

At the broker’s target price of $33.70 a share, the assumed long-term oil price is US$60 a barrel.

Acquisition opportunities

Meanwhile, Credit Suisse is another bull. The broker believes that the asset write-down may facilitate mergers and acquisitions (M&A) as others follow its lead.

This is particularly applicable to the ownership shake-up of the North West Shelf assets and the broker sees material upside from growth at Woodside’s Scarborough/interconnector gas project.

“WPL’s resilience to low oil, and upside potential is underappreciated by the market in our view, although patience through 2022 may be required to see upside come to fruition,” said Credit Suisse.

The broker’s 12-month price target on the stock is $25.24 a share.

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Motley Fool contributor Brendon Lau 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 Scott Phillips.

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