Citi Downgrades Woodside Stock Due to Persisting Investor Worries
Citi's revised outlook for Woodside Energy Group
Recently, Citi made headlines by updating its financial outlook for Woodside Energy Group Ltd (WDS:AU) and Woodside (OTC: WOPEY). The finance firm has lowered its price target from AUD 24.50 to AUD 23.00, maintaining a Sell rating on the stock. This decision seems linked to persistent investor concerns regarding dividend expectations and possible corporate mergers and acquisitions.
Reassessment of financial metrics
This adjustment arose following a careful review of the company's depreciation and amortization (D&A) related to its Sangomar unit, which was previously deemed overly aggressive. As a result, anticipated earnings per share (EPS) and dividend per share (DPS) projections have improved from the second half of 2024 through to the end of 2026.
Potential decreases in DPS forecasts
Despite this outlook adjustment, Citi forecasts a decline in consensus DPS forecasts for the years 2025 and 2026. This anticipated drop primarily stems from non-cash D&A expenses, prompting the firm to revise other sections of its financial model to better fit the company’s long-term plans. This strategic alignment ensures that the firm’s predictions for net profit after tax (NPAT) remain stable through 2028.
Valuation implications and cash flow adjustments
Intriguingly, cash flow projections for Woodside Energy have seen modest declines, resulting in an updated valuation. Consequently, Citi has adjusted the valuation of Woodside shares downward by 5%, landing at AUD 23.24. The analysis underscores a cautious perspective on the stock, influenced by recent financial adjustments and broader market uncertainties.
Recent acquisitions and strategic developments
In other notable developments, Woodside Energy Group Ltd has recently completed its acquisition of OCI Clean Ammonia. This move underscores the company's commitment to expanding into the clean ammonia sector, mirroring the ongoing shift toward renewable energy investments in the industry. Furthermore, the company reported an impressive mid-year 2024 net profit after tax of $1.9 billion, coupled with a 6% reduction in unit production costs. Additionally, it boasted a robust free cash flow of $740 million.
Funding strategies and financial adjustments
The strategic activities include several acquisitions, such as Tellurian's Driftwood LNG and OCI's Clean Ammonia Project, which may push the company beyond its intended gearing range momentarily. Furthermore, Woodside has implemented a pricing strategy for a U.S. bond offering. This move signifies the firm’s ongoing efforts to diversify its financing options to potentially support future developments and expansions.
Management updates and stakeholder communication
Recently, Woodside Energy has also conveyed updates regarding changes in director interests and significant alterations to its management team to the United States Securities and Exchange Commission. Such updates are crucial for stakeholders as they outline the company's position and forthcoming strategies in real-time.
Investing insights into Woodside Energy
While Citi's caution regarding Woodside is notable, recent insights provide a broader picture of the company's financial health. Recent data indicates that Woodside's price-to-earnings (P/E) ratio is currently 15.9, presenting a relatively modest valuation against its earnings. This perspective aligns with a price-to-book ratio of 0.94, suggesting the stock's trading is close to its book value.
Dividend yields and long-term viability
For income-focused investors, Woodside holds a compelling dividend yield of 7.77%. It is noteworthy that the company has successfully maintained dividend payments for 33 consecutive years, reflecting a commitment to rewarding its shareholders. However, investors should remain vigilant, as the dividend growth rate has seen a significant decline of 52.82% in the last year, lending credence to Citi's cautious approach.
Financial metrics and operational performance
The company recorded a revenue of $12.58 billion and an EBITDA of $7.97 billion within the last twelve months concluding in Q2 2024. Despite these figures showcasing robust operations, both metrics exhibit a decline in comparison to prior periods, corroborating Citi's recent reassessments of the firm’s financial outlook.
Frequently Asked Questions
What led to Citi lowering Woodside's price target?
Citi lowered the price target due to ongoing investor concerns regarding dividend expectations and potential mergers and acquisitions.
What is the revised price target for Woodside Energy Group?
The revised price target is AUD 23.00, down from AUD 24.50.
How have earnings and dividend forecasts changed?
Despite improvements in EPS and DPS forecasts, Citi anticipates decreases in consensus DPS for 2025 and 2026.
What recent acquisitions has Woodside Energy completed?
Woodside has completed the acquisition of OCI Clean Ammonia, among other strategic moves to enhance its position in clean energy.
What is Woodside's current P/E and dividend yield?
Woodside's current P/E ratio is 15.9, and it has a dividend yield of 7.77%.
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