Broker says Santos is an ASX 200 energy share to buy

This energy share could be a great option according to Morgans…

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The Santos Ltd (ASX: STO) share price was a positive performer on Tuesday.

The energy producer's shares rose almost 1% to end the day at $7.66.

This means the Santos share price is now up approximately 16% since the start of the year.

Happy man standing in front of an oil rig.

Image source: Getty Images

Can the Santos share price keep rising?

The good news for investors is that one leading broker believes the Santos share price can continue its ascent.

According to a note out of Morgans, its analysts have retained their add rating on the company's shares and lifted their price target to $9.40.

Based on the current Santos share price, this implies potential upside of 23% for investors over the next 12 months.

In addition, the broker is expecting a dividend of approximately 27 cents per share in FY 2023, which equates to an attractive 3.5% yield.

Why is Santos an ASX 200 energy share to buy?

Morgans was pleased with Santos' recent quarterly update and highlights that it "continues to unlock healthy synergies from its merger with OSH, so far achieving savings of US$112m during the 9 months since the merger completed."

The broker believes that the "post-merger STO is starting to really stretch its legs in terms of quality of earnings and cash flow" and expects its gearing to continue to lower, which "will increase STO's investment appeal."

And while Morgans acknowledges that oil prices have started to stutter recently, it expects them to remain high and for Santos to benefit. It concludes:

While we have seen oil prices hit 'pause' on their upcycle over the last quarter, as the world digests slowing growth and a surging US dollar, we expect oil and gas price conditions to remain supportive with the upcycle intact. STO is positioned to benefit against this setting, having de-rated in recent months while the market worried over the threat of potential government intervention into east coast gas markets. With this risk now cleared, we expect STO will only need to work through recent legal issues at Barossa to start to trade towards our valuation.

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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