Morgan Stanley remains constructive on Santos, highlighting the company's continued focus on low-cost free cash flow (FCF) generation and balance sheet de-leveraging.
While Australia's proposed Domestic Supply Obligation introduces some uncertainty, according to the broker, management emphasised the increasing diversity of its portfolio and supply options.
The analysts also highlight the newly identified Mosa oil prospect in PNG, located near existing infrastructure within the PNG LNG permit area. Management expects a 31% internal rate of return (IRR) and a payback period of under four years.
Target remains at $7.50. Equal-weight. Industry view In-Line. Santos is Morgan Stanley's preferred Australian large-cap oil and gas exposure.
Sector: Energy.
Target price is $7.50.Current Price is $7.87. Difference: ($0.37) - (brackets indicate current price is over target). If STO meets the Morgan Stanley target it will return approximately -5% (excluding dividends, fees and charges - negative figures indicate an expected loss).
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