Should I buy Woodside shares before the ASX 200 energy giant reports next week?

Would shares in the energy giant make a smart buy right now?

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Key points
  • Woodside investors have benefited from strong shareholder returns over the past year
  • Analyst estimates suggest that Woodside may have made  US$5.5 billion of net profit in 2022
  • I think investors should be patient before investing in the energy business as I don’t think the good times are going to last forever

Woodside Energy Group Ltd (ASX: WDS) shares will soon have their turn in the spotlight once the S&P/ASX 200 Index (ASX: XJO) energy giant announces its result for 2022. Could this be a good time to invest in the business before the company reports?

Woodside is currently generating enormous profits from the elevated energy prices that have followed the Russian invasion of Ukraine.

First, we'll look at how much profit the business is expected to have made in the 12 months in December 2022.

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Profit expectations

According to Commsec, Bloomberg numbers suggest Woodside is projected to generate a net profit after tax (NPAT) of US$5.5 billion and pay a dividend of 62.7 US cents per share. Taking into account the exchange rate, that dividend could translate into a dividend per share for Aussies of 92 AU cents.

Considering the dividends have been fully franked, that means the ASX 200 energy share's dividend could represent a grossed-up dividend yield of 3.8% for just the one payment.

In earnings per share (EPS) terms, Commsec numbers suggest Woodside shares could generate $3.26 of profit per share. If this forecast is correct, then the Woodside share price is valued at under 11 times FY23's estimated earnings.

It wouldn't be surprising to see that Woodside has generated a lot more profit, particularly thanks to the increased scale the business has after its merger with the petroleum division of BHP Group Ltd (ASX: BHP). Greater scale usually comes with a number of benefits.

Woodside is working on enacting synergies between the two businesses so that it's stronger together, rather than just two separate businesses that have been joined.

Is the Woodside share price a buy?

The ASX 200 energy share's earnings have jumped higher. But, when it comes to cyclical businesses, I think it pays to be cautious about buying when resource prices are strong.

However, I don't think energy prices are going to be as volatile as the iron ore price has been in the last few years. Unless Russian energy is suddenly accepted back into the global energy system, I can't see LNG prices sinking over the next few years.

I think that Woodside is very good at what it does, and its dividend income could be strong to 2025. I'm just not sure where energy prices are headed and, to me, I wouldn't choose to invest after the business' strong run.

I'd rather invest when sentiment is low and the Woodside share price is lower than it is today.

It might be possible to buy the business at a cheaper price. We don't have to invest right now, and there are plenty of other ASX shares to choose that could make more sense.

Motley Fool contributor Tristan Harrison 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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