Woodside slipped more than 4% on Monday, a very similar decline to the oil price during our time zone. The stock is still up ~30% year-to-date, lagging oil prices, which are up ~50%. However, with Woodside Energy’s (WDS) breakeven well below US$40/bbl, and oil still trading above $US90, margins are extremely strong, although existing hedging and contract structures mean the earnings benefit is not captured immediately. Due to hedging, there is also historically a lag between higher oil prices and the eventual uplift in producer earnings and activity, suggesting the sector may be approaching the phase where energy stocks begin catching up to the move already seen in crude. Importantly, Woodside is a highly oil-price-exposed energy stock with roughly 60% of its portfolio oil-linked.
With the company having been able to hedge its oil production at higher prices over the coming quarters, the stock should find support despite ongoing weakness in oil prices, but we still don’t think there’s enough of a reason to buy the stock this FY.
- We can see Woodside consolidating in the $28-30 region over the coming weeks/months.
MM is neutral towards Woodside around $31
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