Santos Ltd (ASX: STO) shares are almost completely flat on a 12-month basis, despite appreciating fairly well from the start of the calendar year.
The stock is up just 2.6% over a year, begging the question, is now a good time to buy?
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Experts divided on the outlook for Santos shares
Analysts are divided on the issue, with one brokerage house I surveyed rating the company a buy, while the other, despite having an overweight rating, has a price target below today's price.
First, let's look at what the company reported last week in its second-quarter report.
Santos said in its report that first-half production came in at 45.6 million barrels of oil equivalent; however, this was expected to increase by about 20% to 30% in the second half of the year.
The company's relatively new Barossa gas project in Australia and Pikka oil project in Alaska were progressing towards full production rates, the company said.
Free cash flow was also expected to increase in the second half, driven by higher production and realised liquefied natural gas prices.
Santos Managing Director Kevin Gallagher said the company would assess its interim dividend in light of its imminent rise in cash flow. However, he also appeared to warn that there could be challenges during the current half.
He said on Thursday:
The board will consider the timing of expected cash flow over the full year in determining the amount of the interim dividend, with first-half free cash flow impacted by a number of timing items that are not reflective of the Company's underlying cash flow capacity. 2026 was always going to be a transition year for Santos with two major development projects coming online and significant commissioning activities to be completed before establishing steady-state performance at both assets. Our initial production guidance had a large band of uncertainty as a result. However, with Barossa's ramp-up nearing completion and Pikka's first wells online, we have narrowed our production guidance to 99 to 105 million barrels of oil equivalent for the full year.
Brokers name their price on Santos shares
Macquarie said in its note to clients following the production report that Santos was being "priced for the past", and gave the company an outperform rating.
The broker increased its price target on Macquarie by just over 1% to $9.05, compared to the Santos share price of $7.90 at the time of writing, and forecasts the company will pay a dividend yield of 3.7% in 2026, rising to 4.9% next year.
Morgan Stanley is less bullish on the outlook for the company, with a price target of just $7.67.
