Morningstar says Woodside shares undervalued
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The news: Morningstar has added Woodside Energy to its global ‘best ideas list’ of shares that are trading at a deep discount to their fair market value estimate.
The numbers: Morningstar estimates the fair market value for Australia’s top oil and gas producer at $41.50 a share, but the stock trades at a 40% discount.
Woodside shares were trading down 0.4% at $24.68 in early trading on the ASX.
The context: Morningstar analysts said Woodside shares have fallen by around 30% since mid-2023, greatly underperforming the broader market.
“While the oil price has also fallen by more than a third from levels then prevailing, the price reaction is unwarranted. Shares are the cheapest relative to our fair value estimate since the tail end of the covid-19 bear market,” they said in a note.
The analysts said oil and gas demand is growing and predictions of a near-term peak followed by rapid decline are likely to prove premature. Significant hydrocarbon investment is required in most demand scenarios to backfill naturally declining supply, they said.
Woodside last month posted record full-year production of 193.9 million barrels of oil equivalent, near the top end of its 189 to 195 Mboe guidance for 2024.
At the same time, Morningstar removed Santos from the 'best ideas list' despite viewing the company as cheap. The research house believes there is more comparative value elsewhere.
The source: Morningstar research
