Santos (ASX:STO) has released half year results showing net income of US$355 million and a lower earnings per share figure than a year earlier. The company also affirmed an interim dividend of US$0.116 per share.
At a share price of A$8.12, Santos has seen a 32.03% year to date share price return, while the 1 year total shareholder return of 8.20% and 5 year total shareholder return of 64.47% point to gains built over a longer period. Recent dividend announcements and the half year earnings update appear to be framing current sentiment, with the 7 day share price return declining 3.45% after a 4.50% 30 day share price return and a 3.97% 90 day share price return. This indicates that momentum has cooled slightly following a strong run earlier in the year.
Compare Santos' latest earnings and dividend story with hand picked energy peers by scanning 38 power grid technology and infrastructure stocks that may also be reacting to recent cash flow and payout news.
Santos has delivered a strong share price run alongside softer earnings and a steady dividend. Some will see value on offer, while others will question whether the good news is already priced in. Which side does the valuation support?
Most Popular Narrative: 8.7% Undervalued
Santos is trading at A$8.12 against a narrative fair value of A$8.89, which frames the current share price as below that narrative estimate.
Santos (ASX: STO) experienced a sharp share price drop after the failed A$36 billion takeover by a consortium led by ADNOC. While the deal’s withdrawal removed a near-term premium, it highlighted the strategic value of Santos’ LNG and gas assets. The offer was at a level that was around 30–35% higher than pre-bid prices, which some investors may interpret as an indication that the company could be underpriced by the market.
Want to see what sits behind that fair value for Santos? The narrative leans heavily on earnings resilience, project ramp up and the profit profile they point to.
Result: Fair Value of A$8.89 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Santos still faces risks around commodity price swings and potential project delays, either of which could quickly challenge the current undervalued narrative.
Find out about the key risks to this Santos narrative.
Another View on Santos using earnings multiples
The user narrative points to an 8.7% undervaluation for Santos at A$8.12, yet the earnings multiple tells a different story. The current P/E of 25.8x is above the fair ratio of 19.5x, the Australian Oil and Gas industry at 14.4x, and the peer average of 14.1x. That richer pricing can mean less room for error if earnings forecasts or sentiment cool from here. How comfortable are you with paying a premium for this stock?
For a closer look at how the current P/E compares with where the market could move, including that fair ratio reference point, See what the numbers say about this price — find out in our valuation breakdown.
Next Steps
If the mix of optimism and concern around Santos leaves you undecided, now is a good time to review the numbers yourself and make up your own mind. To help frame both sides of the story in one place, start with the 2 key rewards and 1 important warning sign.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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