Are Woodside shares a better buy than rival Santos?

What's the verdict?

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Keen-eyed investors will have noted Woodside Energy Group Ltd (ASX: WDS) shares curling off their 3-month lows at the end of June. After a difficult past year of trade, the ASX energy stock has now clipped a 4% gain in the past month.

Many investors may wonder how Woodside compares to some of its ASX energy peers, particularly its competitor Santos Ltd (ASX: STO). As of today, Woodside shares trade at $29.06 per share, while Santos shares are priced at $7.68 per share.

Brokers rate both Woodside and Santos as potential buys in the energy sector. But which stock might be the better investment? Let's take a look.

Why consider Woodside shares?

Woodside shares have faced a challenging past year, dropping 16% into the red. However, some experts see this as a buying opportunity.

Bell Potter recently suggested that Woodside shares could be "pretty good buying at these levels," even projecting a potential rise above $30 in the next three to five months.

The firm highlights a seasonal trend where investors shift into underperforming stocks in July, potentially boosting Woodside's price.

Analysts are also optimistic about Woodside's major growth projects like the Scarborough and Pluto Train 2 developments. Morgans rates Woodside a buy with a price target of $36.00 per share, implying a 24% upside.

Goldman Sachs, while maintaining a neutral rating on the stock, further acknowledges Woodside's stable project pipeline.

"Key projects are progressing well", it said in a February note, "with Scarborough and Pluto Train 2 expected to deliver the first LNG cargo in 2026."

Additionally, Woodside's trailing dividend yield currently stands at 7.43%, with the last dividend being $2.16 per share.

Is Santos a stronger buy?

Santos shares have performed better than Woodside shares over the past year, up 0.79%.

Despite the relative gains, investors have valued the company at a lower multiple compared to Woodside shares.

Santos trades on a price-to-earnings (P/E) ratio of 11.85 times, cheaper relative to Woodside's P/E of 22.30 times. This says investors are paying $11.85 for every $1 of Santos' earnings versus $22.30 for Woodside.

Additionally, Santos offers a trailing dividend yield of 3.67% with its trailing payout of 40 cents per share.

Goldman Sachs reinstated Santos as a buy with a price target of $8.35 in February. It forecasts 10% annual production growth over the next 3 years, which it says could translate into growth in market value.

It expects 2024 "to be the trough for Santos production and earnings", as it sees startup at its Barossa and Pikka sites throughout 2025-2026.

Goldman sees Santos trading at a significant valuation discount (it was at 0.8 times its net asset value in the February note). Its price target could provide an upside of around 7.7% from current levels.

The bottom line

The consensus among analysts is that both stocks have potential upsides. CommSec rates both Santos and Woodside shares as a buy based on the consensus rating of analyst estimates. Meanwhile, Goldman's buy rating on Santos is backed by expectations of robust production growth offsetting global gas price weakness.

Both Woodside and Santos have their strengths. Woodside offers a higher dividend yield and promising long-term projects. Santos, on the other hand, appears to be trading at a more attractive valuation with significant production growth expected in the coming years. As always, remember to conduct your own due diligence.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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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