Are Santos shares a good investment right now?

With a 3.8% dividend yield, should I buy Santos shares right now?

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Santos Ltd (ASX: STO) shares are outperforming the benchmark today.

In late afternoon trade, shares in the S&P/ASX 200 Index (ASX: XJO) energy stock are up 0.7%, swapping hands for $7.40 apiece.

That compares to a 0.2% loss posted by the ASX 200 at this same time.

Over the full year, however, Santos has underperformed the benchmark. Santos shares are down 2.3% over 12 months compared to a 6.4% gain posted by the ASX 200.

This doesn't include the 40.2 cents a share in unfranked dividends Santos delivered over the year. That sees that stock trading on a trailing yield of 3.8%.

Now, that's all water under the bridge today.

Looking ahead, are Santos shares a good investment right now?

Time to buy Santos shares?

The answer to that question is somewhat dependent upon who you ask.

Catapult Wealth's Dylan Evans isn't a big fan of Santos shares at the moment, with a sell recommendation on the stock.

According to Evans (courtesy of The Bull), "We prefer to have limited exposure to oil and gas given developed countries are beginning to transition from fossil fuels to cleaner energy, albeit slowly."

Evans added:

There's little doubt LNG will continue to be an important energy solution for years to come. However, gas prices are closely linked to oil markets, which were recently showing signs of oversupply as demand falls. OPEC is reluctant to cut supplies to support prices as it doesn't want to run the risk of losing market share.

Goldman Sachs has a decidedly more bullish take on Santos shares.

Following Santos' full-year results, reported on 21 February, the broker reinstated Santos as a buy, citing "significant valuation discount with strong production growth to offset global gas price weakness."

Goldman placed a $8.60 price target on Santos shares. That's more than 16% above current levels.

Goldman noted:

We expect 2024 to be the trough for STO production and earnings as Barossa and Pikka start up over 2025-2026 and support a ~10% production CAGR over the next 3 years, offsetting the impact from softening global gas prices as the LNG market moves back into material oversupply.

With key growth project Barossa materially de-risked following the Federal Court's Jan 15 Judgment to lift the injunction halting pipeline installation and a lack of challenges to NOPSEMA project approvals, we see attractive valuation with STO trading at ~0.8x NAV.

As for the oil price, Brent crude oil reversed a lengthy slide on 4 June, when Brent was trading for US$77.52 per barrel. Today that same barrel is worth US$85.32, up 10.1%.

And in what could offer some tailwinds for Santos shares over the coming months, Aldo Spanjer, a senior commodities strategist at BNP Paribas, has a bullish outlook for oil in the quarter ahead.

"I'm comfortable being bullish for Q3 still," Spanjer said (quoted by Bloomberg).

"While June looks weak, I think demand comes up for diesel, gasoline and particularly jet. That's a pretty strong demand increase over the next two to three months."

Motley Fool contributor Bernd Struben 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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