Why these experts say the Santos share price is 'definitely a buy'

Could the Santos share price weakness be a buying opportunity?

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Key points

  • The Santos share price is finding some support today, but it will still exit September with a big loss
  • This could be a buying opportunity as some fund managers are bullish on Santos' outlook
  • Citigroup has also upgraded its price target on the shares by 11% to $10 a share and reiterated its buy recommendation

The Santos Ltd (ASX: STO) share price is on track to exit September nursing big losses, but this hasn't dissuaded some experts from recommending the energy giant as a buy.

Shares in Santos may be up 0.28% to $7.04 in early afternoon trade today, but the company is still likely to post a loss of around 10.5% for the month.

That's worse than Woodside Energy Group Ltd (ASX: WDS) shares and S&P/ASX 200 Index (ASX: XJO). Both shed around 7% over the month.

Buy the dip in Santos share price

But the Santos share price weakness could be a buying opportunity, according to some experts.

Fund managers Simon Shields from Monash Investors and Todd Warren from Tribeca are big Santos backers, reported LiveWire.

The fundies believe that the energy sector has benefited from the multiple headwinds buffeting the market this year.

Todd Warren said:

A lot of cheap money has been washing around in the market for a little while now. We're dealing with the consequence of that. We think that the longer-term consequence though, with regards to resources, is that there's been no money going in the ground for new supply.

Obviously specific to energy, we think that's going to continue to be a thematic that plays out. But obviously, with energy, you've got geopolitics that can cause some short-term headlines that can be a risk factor for markets.

Price target upgrade

Both Warran and Shields rate the Santos share price a buy. And they aren't the only ones that are bullish on the shares.

Citigroup reiterated its buy rating on Santos yesterday as it lifted its price target by $1 to $10 a share. This implies a more than 43% upside if you include Santos' expected dividend payout.

The price target upgrade follows news of the 5% sell-down in Santos' PNG LNG stake for US$1.4 billion.

Better than expected valuation

The broker added:

The implied value of the offer is 8.3% above our base case PNG LNG NPV of US$25.8bn. With project partner sign-off and regulatory/financing approvals still to come, we have a high degree of confidence the deal will go ahead….

We see this as value accretive with higher exposure to the LNG spot market at elevated prices amid global gas price volatility.

High LNG prices and an expected increase in production are other factors behind Citi's favourable view on the Santos share price.

Santos share price snapshot

Santos has lost 1.7% in value over the past 12 months, while the ASX 200 index is down more than 11% in the same period.

In comparison, the Beach Energy Ltd (ASX: BPT) share price dipped 1.5%, although the Woodside share price is up by an enviable 33% following its purchase of BHP Group Ltd's (ASX: BHP) oil and gas assets.

Motley Fool contributor Brendon Lau has positions in Santos Limited and Woodside Petroleum Ltd. 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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