Is Woodside Energy Group (ASX:WDS) Undervalued As Alcoa Deal And Scarborough Progress Lift Interest?

Interest in Woodside Energy Group (ASX:WDS) has picked up after its new Western Australian gas supply agreement with Alcoa and progress updates on the Scarborough offshore gas project, prompting investors to reassess the stock.

See our latest analysis for Woodside Energy Group.

The recent supply deal and Scarborough progress come against a mixed price backdrop, with the A$27.65 share price giving a year to date share price return of 16.86% but a 90 day share price return that is down 19.79%. The 1 year total shareholder return of 23.55% contrasts with a slightly negative 3 year total shareholder return, suggesting shorter term momentum has improved relative to the medium term picture.

If the Woodside Energy Group story has you looking more broadly at energy and infrastructure, it could be a good time to scan 35 power grid technology and infrastructure stocks

With Woodside Energy Group trading at A$27.65, sitting on a 5-year total shareholder return of 75.43% and showing discounts to both analyst targets and intrinsic value estimates, is there still an opportunity here, or is the market already pricing in future growth?

On a P/E of 13.4x at a share price of A$27.65, Woodside Energy Group screens as good value relative to both peers and the estimated fair P/E, which points to a potential valuation gap.

The P/E multiple compares the current share price with earnings per share, giving a quick sense of how much investors are paying for each dollar of profit. For an established energy producer with A$12,984.0m of revenue and A$2,718.0m of net income, this is a commonly used yardstick because earnings are a key driver of shareholder returns in the sector.

Woodside Energy Group is described as trading at good value compared to peers and the wider oil and gas industry, while also sitting below an estimated fair P/E of 17.9x. That combination signals that the market is pricing the stock at a lower earnings multiple than the level statistical models suggest it could move toward, and below the average 36.8x multiple seen across comparable companies, which is a substantial gap for investors to consider.

Against the Global Oil and Gas industry average P/E of 13.4x, Woodside Energy Group is described as good value, implying investors are getting similar or lower pricing per unit of earnings despite the company meeting that industry benchmark. When compared to the peer average P/E of 36.8x, the discount becomes much more pronounced, reinforcing the idea that the current multiple reflects more cautious expectations than the fair ratio and peer set indicate.

Explore the SWS fair ratio for Woodside Energy Group

Result: Price-to-Earnings of 13.4x (UNDERVALUED)

However, investors also need to weigh project execution risk on Scarborough and exposure to commodity price swings, as these factors could quickly shift sentiment around Woodside Energy Group.

Find out about the key risks to this Woodside Energy Group narrative.

Alongside the 13.4x P/E discussion, our DCF model values Woodside Energy Group at A$45.03 per share, compared with the current A$27.65 price. This implies the stock is described as trading at a discount to the estimated future cash flow value rather than being stretched.

That kind of gap can point to opportunity if cash flows materialise as expected. It also raises the question of how comfortable you are relying on long term forecasts and project delivery risk for assets like Scarborough and other developments.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Woodside Energy Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 7 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

If the mixed signals around Woodside Energy Group have left you uncertain, take a closer look at both sides of the story and act while sentiment is still taking shape. Then weigh the 1 or more risks and 1 or more rewards highlighted by other investors by checking the 2 key rewards and 1 important warning sign

If Woodside Energy Group has sharpened your focus, do not stop here. Broaden your watchlist with a few focused stock ideas sourced from the Simply Wall Street Screener.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Discover if Woodside Energy Group might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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Engages in the exploration, evaluation, development, production, marketing, and sale of hydrocarbons in the Asia Pacific, Africa, the Americas, and the Europe.

Undervalued with excellent balance sheet.