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Broker says Santos share price could storm 27% higher

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The Santos Ltd (ASX: STO) share price is pushing higher on Wednesday thanks to rising oil prices.

In afternoon trade, the energy producer’s shares are up 1% to $7.88.

This means the Santos share price is up 19% since the start of the year.

Can the Santos share price keep rising?

The good news for investors is that one leading broker believes there’s still plenty of upside ahead for the Santos share price.

According to a note out of Morgans, its analysts have put an add rating and $10.00 price target on the company’s shares.

Based on the current Santos share price, this implies potential upside of almost 27% for investors over the next 12 months.

What did the broker say?

Morgans notes that the company has announced a US$250 million share buyback. While it is not overly sure about the decision, it points out that this appears to indicate that management believes the Santos share price could be cheap. It said:

“It is good to see STO prioritising shareholder returns, particularly during periods of elevated earnings. In particular linking returns to FCF strength while leaving plenty of capacity for management to flex distributions.

Although it is harder to see the value proposition of the on-market share buyback at current prices. Other than a brief spike in early 2020 (pre COVID), STO is trading at its highest share price since 2014. This increases risk around the assumption that the buyback adds value. History has taught us that buybacks typically struggle to add value when conducted at cycle highs.”

Nevertheless, the broker remains very positive on the investment opportunity here and believes its “growing earnings should ease any lingering market concerns around STO’s balance sheet.”

It has also recently stated that it expects “the resilience of STO’s growth profile and diversified earnings base [to] see it best placed to outperform against a backdrop of a broader sector recovery.”

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