The Santos Ltd (ASX: STO) share price has fallen by more than 20% from August 2025, as the chart below shows. A key question is whether the ASX energy share is good value at this level.
A decline in valuation could be an attractive buying opportunity because of the cyclical nature of energy prices. It can be useful to buy cyclical businesses after they've gone through a period of weakness.
At the moment, there are multiple analysts that rate the business as a buy. At the time of writing, there are currently nine buy ratings on the business, according to a Commsec collation of analyst opinions on the company.
Let's take a look at what brokers are seeing with the ASX energy share.
Expert views on the ASX energy share
UBS is one of the brokers that rates the Santos share price as a buy, with a price target of $8.10. That implies the broker expects a possible rise of almost 30% within the next year. I think that's likely to be a market-beating return, if it eventuates.
The broker noted that the company's quarterly production for the three months to September 2025 saw production and sales revenue was slightly weaker than analyst estimates because of the impact of flooding in the Cooper basis, a slower ramp-up of production at Fairview from the drilling program under way (within GLNG) and a marginally slower ramp-up from the new Barossa gas project.
This led to Santos trimming its 2025 production and sales volume guidance, leading to a modest reduction of projected earnings per share (EPS) over the next two to three years.
Successful commissioning of Barossa provides a "material de-risking" of the Santos investment thesis and should support the Santos share price.
UBS commented that the oil outlook faces a number of supply and demand uncertainties, but the broker believes Santos' fundamentals are solid. The broker thinks the ASX energy share is on the cusp of "material deleveraging" and a "step change" in free cash flow, making Santos shares its preferred pick in the Australia energy sector.
The broker also suggests that the business could decide to lift its distribution payout ratio from more than 40% of free cash flow excluding major growth to more than 60% of all-in free cash flow.
UBS said with its final thoughts:
We also believe the ADNOC process has revealed that other strategic competitors see considerable value in STO's undeveloped asset portfolio, presenting STO numerous options for asset recycling, growth funding & improving shareholder returns. Following the resignation of the CFO and recognising that the CEO's long-term performance rights vest from 2026, we think executive succession planning must become a key focus of the board.
Santos share price valuation
UBS projects the business could generate US$1.5 billion of net profit in FY26 and US$1.7 billion in FY28.
That means the Santos share price is valued at 9x FY26's estimated earnings and 8x FY28's estimated earnings. That certainly is a cheap price/earnings (P/E) ratio.
