Could beaten-up Woodside shares offer 'Safe buying with limited downside'?
Worker on a laptop at an oil and gas pipeline.
Woodside Energy Group Ltd (ASX: WDS) shares have faced significant challenges over the past year, dropping 16.59% into the red.
Meanwhile, the S&P/ASX 200 Index (ASX: XJO) has returned 6.45% in the same period, meaning Woodside has underperformed the benchmark by over 23%.
Despite this, some experts think Woodside shares might present a good buying opportunity. Let's take a closer look.
Potential recovery for Woodside shares?
It's been a tough ride for Woodside shares in 2024, with its share price declining by 8.11% since January.
This is partly due to a slump in oil prices and broader market conditions. For instance, WTI crude oil peaked at US$86.40 per barrel on 5 April before consolidating sharply to a low of US$74 per barrel on 3 June. It has since recovered to $83.58 per barrel at the time of writing.
According to my colleague Tristan, this led to a 25% year-over-year decrease in average realised prices for its oil production to US$63 per barrel in Q1 CY 2024.
Despite these setbacks, analysts remain cautiously optimistic about Woodside's prospects. The company's major growth projects, including the Scarborough and Pluto Train 2 developments, are progressing well.
Richard Coppleson of investment bank Bell Potter said Woodside shares could be "[p]retty good buying at these levels", according to The Australian Financial Review. He stated:
[Woodside shares] may not recover quickly but should be back above $30 in the next three to five months. Safe buying here with limited downside.
Coppleson also said that Woodside's share price could be bolstered by a trend that occurs almost every July, where investors rotate out of "last year's winners…and into the laggards", per the AFR.
This July trend is "so good", he says, that it has seen the market rise around 85% of the time in the past 15 years, "with an average move at a whopping 3.55%".
What else are analysts saying about Woodside shares?
According to CommSec, Woodside shares are rated a buy from the consensus of analyst estimates. This is made up of 10 buy recommendations and 5 hold ratings.
Morgans rates Woodside a buy with a price target of $36.00 per share, suggesting a potential upside of 25% from current levels.
The broker also forecasts fully franked dividends of $1.25 per share for FY 2024 and $1.57 per share for FY 2025. This translates to a dividend yield of 4.3% and 5.5% respectively at the current share price.
Meanwhile, in a February note, Goldman Sachs rated the company a hold. This is despite raising its forward estimates on the energy giant:
We remain Neutral rated on (1) Relative valuation, (2) Limited production growth to offset gas price weakness, (3) Oil production ramp-up uncertainty.
Aside from that, Woodside management said key projects are pushing ahead. The Scarborough and Pluto Train 2 projects were 62% complete at the end of the first quarter of 2024. It expects the first LNG cargo in 2026.
Foolish takeaway
Given the recent dip in Woodside shares, some investors see this as an opportunity to buy at lower levels to reduce the downside risk.
Analysts' decisions are bullish on the company, but remember to always conduct your own due diligence.
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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.