On Tuesday, Citi adjusted its financial outlook for Woodside (OTC:WOPEY) Energy Group Ltd (WDS:AU) (NYSE: WDS), reducing the price target to AUD23.00 from the previous AUD24.50, while maintaining a Sell rating on the stock. The firm cited ongoing concerns around dividend expectations and potential mergers and acquisitions as factors influencing the decision.
The revision follows a reassessment of the company's Sangomar unit depreciation and amortization (D&A), which was previously considered too aggressive. This reassessment has led to an increase in expected earnings per share (EPS) and dividend per share (DPS) forecasts from the second half of 2024 to the calendar year 2026.
Despite the adjustment, Citi anticipates that consensus DPS forecasts may decrease for the calendar years 2025 and 2026, primarily due to non-cash D&A expenses. The firm has made cuts in other areas of its model to align with the company's five-year outlook charts, resulting in an overall net profit after tax (NPAT) to 2028 that remains largely unchanged.
However, the firm's cash flow forecasts for Woodside Energy have been slightly reduced, which has led to a valuation implication. Consequently, Citi's valuation of the company's shares has been lowered by 5% to AUD23.24. The analyst emphasized that the revised valuation reflects a more cautious stance on the stock, taking into account the financial adjustments and the broader investment risks associated with the company's strategic moves and market expectations.
In other recent news, Woodside Energy Group Ltd finalized its acquisition of OCI Clean Ammonia, marking a significant expansion in the clean ammonia sector. This aligns with the company's focus on energy and transportation and the industry's shift toward renewable energy investments. In financial news, Woodside reported a mid-year 2024 net profit after tax of $1.9 billion, a 6% decrease in unit production costs, and a positive free cash flow of $740 million. However, due to strategic acquisitions, including Tellurian (NYSE:TELL)'s Driftwood LNG and OCI's Clean Ammonia Project, the company expects a temporary exceedance of its target gearing range.
The company also priced a U.S. bond offer, indicating a strategy to diversify its financing options and possibly fund further development or expansion activities. Citi recently downgraded Woodside Energy from Neutral to Sell, adjusting the price target to AUD24.50, influenced by a reassessment of the company's valuation and revised expectations for near-term dividend payouts.
Woodside Energy 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 recent developments provide investors with a clear picture of the company's current position and future strategies.
InvestingPro Insights
While Citi has adjusted its outlook for Woodside Energy Group Ltd (WDS), recent data from InvestingPro provides additional context to the company's financial position. As of the last twelve months ending Q2 2024, Woodside's P/E ratio stands at 15.9, indicating a relatively modest valuation compared to its earnings. This aligns with the company's price-to-book ratio of 0.94, suggesting the stock may be trading close to its book value.
InvestingPro Tips highlight Woodside's significant dividend yield, currently at 7.77%, which could be attractive to income-focused investors despite Citi's concerns about dividend expectations. Additionally, the company has maintained dividend payments for 33 consecutive years, demonstrating a commitment to shareholder returns. However, it's worth noting that the dividend growth rate has declined by 52.82% in the last twelve months, which may support Citi's cautious stance.
The company's revenue of $12.58 billion and EBITDA of $7.97 billion for the last twelve months ending Q2 2024 reflect its substantial operations, although both figures show a decline compared to previous periods. This aligns with Citi's reassessment of the company's financial outlook.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Woodside Energy Group, providing a deeper understanding of the company's financial health and market position.
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