Santos stock rating reinstated as Buy by Goldman Sachs after takeover withdrawal

Investing.com - Goldman Sachs has reinstated coverage on Santos Ltd. (ASX:STO) with a Buy rating and a price target of AUD8.25 following the withdrawal of a takeover offer by the XRG consortium. The company, currently trading at a P/E ratio of 14x and EV/EBITDA of 6.2x, appears undervalued according to InvestingPro Fair Value analysis.

The firm sees potential for significant performance as Santos’ major growth projects Barossa and Pikka are expected to unlock substantial free cash flow over the next five years, which could be returned to shareholders through dividends and/or share buybacks. InvestingPro data shows Santos has maintained dividend payments for 8 consecutive years, with a current free cash flow yield of 5%.

Goldman Sachs notes Santos is currently trading at an 18% discount to its net asset value while being positioned to deliver 29% year-over-year production growth and 22% EBITDA growth as these key projects come online.

The company is trading at a projected 9% free cash flow yield for 2026, with Goldman Sachs expecting at least 6% to be returned to shareholders as Santos implements its new return framework of over 60% of free cash flow starting next year.

For the 2026-2030 period, Goldman Sachs forecasts that 9% free cash flow yields can be sustained even with a conservative US$1.3 billion annual growth capital expenditure allocation, while Santos maintains options to sequence or sell down other projects including Dorado, Pikka Phase 2, and Narrabri.

In other recent news, Santos Ltd. has experienced a series of notable developments. The company reported its second-quarter 2025 results, where revenue surpassed RBC Capital’s forecasts, although production levels met expectations. Despite this positive revenue performance, RBC Capital downgraded Santos’s stock rating from Outperform to Sector Perform, setting a price target of AUD7.50 due to acquisition risks. Meanwhile, CLSA maintained its Outperform rating on Santos, with a price target of AUD9.35, despite the withdrawal of Adnoc’s acquisition bid for the company. The withdrawal came after several delays, which could introduce short-term downside risk to Santos shares. These recent developments highlight the mixed analyst perspectives on Santos’s future performance.

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