Santos Shares Dropped 10% in November: Is It a Buying Opportunity?

2 min read | November 30, 2023 07:43 AM AEDT | By Team Kalkine Media

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Santos Shares Dropped 10% in November: Is It a Buying Opportunity? — Image source: shutterstock.com

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Santos Ltd (ASX: STO) faced a challenging November as its shares recorded a decline of approximately 10% during the month, consequently impacting the overall performance for the year and pushing it into negative territory. The downturn was predominantly attributed to the sustained weakness in oil prices, which are on track to register another monthly decline of around 4%. This trend not only affects Santos but also reflects broader challenges within the ASX oil and gas stocks sector, as the industry contends with fluctuating energy prices and market dynamics.

The Brent crude oil price has now fallen 14% since the end of September, reaching US$96.55 per barrel. The decrease in oil prices adversely impacts energy producers like Santos and Woodside Energy Group Ltd (ASX:WDS), leading to reduced profit margins and potentially affecting dividend payments.

Despite the recent share price decline, analysts at Citi seem to view this as a buying opportunity. They have assigned a buy rating and a $8.25 price target to Santos' shares, suggesting a potential upside of around 19% over the next 12 months. The analysts emphasized that while a strategic review may not unlock significant value, the breakup value of the company's assets, based on precedents, surpasses the market value of STO's equity plus control premium.

Regarding the troubled Barossa project, Citi sees the share price as offering a free option on the project, particularly with an implied oil price in the low $60s. The note from Citi suggests that despite the challenges and uncertainties, Santos is considered inexpensive, maintaining a positive outlook with a buy recommendation.

Investors should closely monitor the developments in the energy market, oil prices, and any strategic initiatives undertaken by Santos. The stock's performance will likely be influenced by these factors in the coming months. As with any investment, it's essential for investors to conduct thorough research and consider the potential risks before making decisions based on short-term market fluctuations

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