Citi cuts Woodside Energy to sell, lowers target to AUD24.50

On Wednesday, Citi issued a downgrade for Woodside (OTC:WOPEY) Energy Group Ltd (WDS:AU) (NYSE: WDS), shifting its rating from Neutral to Sell. The firm also adjusted the price target to AUD24.50, a slight decrease from the previous AUD25.00.

The downgrade was influenced by a reassessment of the company's valuation after a recent increase in its stock price, alongside revised expectations for near-term dividend payouts and ongoing uncertainty about potential mergers and acquisitions.

According to the analyst from Citi, the downgrade to Sell is based on the valuation after the stock's rebound from its lows. The revised price target reflects a 2% reduction to AUD24.50 per share. The analyst noted that Woodside Energy's earnings projections have been significantly lowered due to changes in depreciation schedules.

The profit and loss statement is expected to be highly leveraged based on depreciation and amortization estimates that are above consensus, which could lead to substantial differences from consensus estimates for dividend per share forecasts in calendar years 2025 and 2026.

The firm's analysis anticipates the use of a Dividend Reinvestment Plan (DRP) by Woodside Energy moving forward. The analyst also indicated that the macroeconomic environment is becoming less favorable for oil prices and that guidance on the Sangomar project is expected by February. These factors could contribute to potential consensus downgrades over the next six months.

Citi's report includes concerns that the consensus downgrade cycle for Woodside Energy may not be complete. The firm's estimates, which are below consensus, appear to align with the company's five-year outlook charts, suggesting further adjustments may be necessary. This outlook presents a cautious view on the stock's potential performance in the near term.

In other recent news, Woodside Energy Group Ltd reported notable developments. The company disclosed a strong mid-year 2024 financial performance, with a net profit after tax of $1.9 billion, a decrease in unit production costs by 6%, and a positive free cash flow of $740 million. Alongside these results, Woodside Energy announced the successful startup of the Sangomar project and progress at the Scarborough Energy project.

Further, Woodside Energy made strategic acquisitions, including Tellurian (NYSE:TELL)'s Driftwood LNG and OCI's Clean Ammonia Project. Despite potential risks related to project execution and regulatory approvals, the company remains confident in its operational discipline and project delivery, including the $12.5 billion Scarborough project. However, the company anticipates a temporary exceedance of its target gearing range due to recent acquisitions.

In addition to these developments, Woodside Energy has reported changes in the interests of its directors and a significant update on its management team to the United States Securities and Exchange Commission. These are some of the recent developments concerning Woodside Energy Group Ltd.

InvestingPro Insights

Adding to the analysis provided by Citi, recent data from InvestingPro shows that Woodside Energy Group Ltd (NYSE: WDS) is currently trading with a market capitalization of $35.05 billion and a P/E ratio of 19.03, which adjusts to a slightly more attractive 16.47 based on earnings over the last twelve months as of Q2 2024. These figures underscore the company's substantial presence in the market and its valuation relative to earnings.

InvestingPro Tips highlight that Woodside Energy pays a significant dividend to shareholders and has maintained this dividend for 33 consecutive years, with a current dividend yield of 7.43%. This long-term consistency in dividend payments can be appealing to income-focused investors, especially considering the company's ability to cover cash flows for interest payments. Furthermore, analysts predict the company will be profitable this year, having been profitable over the last twelve months.

For investors seeking more in-depth analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/WDS. These tips may provide further insights into Woodside Energy's stock performance, including its low price volatility and moderate level of debt, which could be pivotal for investment decisions in the current economic climate.

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