Santos Ltd (ASX: STO) shares are marching higher today.
Shares in the S&P/ASX 200 Index (ASX: XJO) energy stock closed yesterday trading for $6.49. In morning trade on Tuesday, shares are swapping hands for $6.56 apiece, up 1.0%.
Santos shares look to be enjoying some added tailwinds today amid a 0.7% overnight boost in the oil price. Brent crude oil is currently trading for US$65.07 per barrel. Brent crude oil hit multi-year lows of US$60 per barrel on 7 May.
With today's boost factored in, Santos shares remain down 14% over the past 12 months. Though that doesn't include the 35.4 cents per share in unfranked dividends Santos paid eligible shareholders over the year. Santos currently trades on a 5.4% trailing dividend yield.
More recently, the ASX 200 oil and gas stock has been on a strong upward trend, with shares now up 23% since the recent closing low on 9 April.
And according to Bell Potter Securities' Christopher Watt, Santos is well placed to deliver more outperformance, and juicy dividends, in the year ahead (courtesy of The Bull).
Image source: Getty Images
Santos shares 'fundamentally cheap'
"The energy giant is fundamentally cheap, trading on a modest earnings estimate in fiscal year 2025 and a forecast dividend yield of about 6%," said Watt, who has a buy recommendation on Santos shares.
Atop its cheap valuation, Watt recommends the ASX 200 energy stock as a buy because, "The balance sheet is strong, with gearing at 18.7%. Capital expenditure discipline was evident in first quarter results."
The third reason to consider buying Santos today is the company's growth projects.
According to Watt:
Barossa LNG and Pikka Oil are tier one projects, delivering step change volume and margin expansion from fiscal year 2025 onwards. STO's integrated model – linked gas, LNG, and oil – provides stable revenue across the cycles.
And the fourth reason is Santos' low-cost production profile.
"With breakeven below US$35 a barrel and cash flows improving, Santos is positioned for capital returns and earnings growth," Watt said.
What's the latest from the ASX 200 energy stock?
The last price-sensitive news released for Santos shares was the company's quarterly update on 17 April.
Santos reported free cash flow from operations of US$465 million for the three months to 31 March, up 9% from the prior quarter. Capital expenditures were down 12% from the December quarter to US$613 million.
As for the growth projects Watt cited above, the company reported that Barossa LNG was 95.2% complete, with Pikka phase-1 82.2% complete.
First production at Pikka was still flagged for mid-2026, but management hinted an early startup could be on the cards.
Santos shares closed up 2.9% on the day the company reported.
