Woodside Energy Group Ltd (WDS) - Comprehensive analysis
Woodside shares have declined approximately 30% since mid-2023, significantly underperforming the broader market. Although oil prices have also dropped by more than a third from their previous levels, this reaction appears unjustified. The shares are currently the most undervalued relative to our fair value estimate since the end of the COVID-19 bear market. While some believe that the era of hydrocarbons is coming to an end, demand for oil and gas continues to grow. Predictions of an imminent peak followed by a rapid decline in demand are likely to be premature. Substantial investment in hydrocarbons is necessary in most demand scenarios to compensate for naturally declining supply. Our valuation of Woodside is based on two key assumptions: a hydrocarbon production growth of 15% to 225 million barrels of oil equivalent per day and a Brent price of USD 60 per barrel. We anticipate a marginally negative five-year EBITDA compound annual growth rate (CAGR) of 2.0%, resulting in an EBITDA of USD 8.1 billion by 2028, considering that our midcycle Brent price is 20% below current levels.
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