Key points
- Woodside is off to a flying start in 2022 backed by strengths in underlying commodities markets
- UBS raised its EPS targets on the petroleum giant by 31% for FY21
- Broker concurrently reduced its dividend forecasts, feeling Woodside could preserve capital
- UBS rates Woodside as a buy on a $28.80 price target.
Shares in Woodside Petroleum Limited (ASX: WPL) are rangebound today and are now trading less than 1% in the red at $24.99.
With oil and gas markets rallying to new single-year highs again, Woodside shares have climbed 14% into the green already this year to date. Brent Crude has also climbed just over 13% since January 1 as well, alongside gasoline futures, falling just shy of 3-month highs at US$2.40/gallon.
Now the team at UBS have become more constructive on the petroleum giant, hammering down its buy call in a recent note to clients. Let's take a look.
Why's UBS bullish on the Woodside share price?
The Swiss investment bank raised its earnings forecasts for Woodside's FY21 results due to its improved revenue outlook.
UBS increased its earnings per share (EPS) targets for the company by 31% in FY21, subsequently raising its EPS estimates by 12% and 4% in FY22 and FY23 respectively.
This is a reflection of Woodside's increased domestic gas sales and heightened production at its Pluto LNG asset, as well as of the buoyant underlying markets.
However, in spite of the bullish earnings projections, the broker also reckons Woodside might refocus its capital allocation away from its dividend programme.
The broker says it expects Woodside to "preserve capital to support its growth projects and energy transition spend (US$5 billion by 2030)".
As such, it reduced its implied payout ratio assumptions down from 80% to 65%, curtailing its dividend per share forecasts by 9–15% in doing so.
Nevertheless, UBS rates Woodside as a buy right now and values the company at $28.80 per share.
Morgans, Barrenjoey Capital Markets and Credit Suisse also rate Woodside a buy right now, valuing the company at $31, $33 and $28.32 respectively.
More on the Woodside share price
In the last 12 months, the Woodside share price has remained in the red and has lost 6% in that time.
Things are different in 2022 however, with shares performing well after rallying 14% in the past month.
As such, the Woodside share price is outpacing the benchmark S&P/ASX 200 Index (ASX: XJO) so far this year to date.
