Santos Ltd (ASX: STO) shares could be heading a lot higher from here.

That's the view of one leading broker, which thinks that the energy giant's shares are seriously undervalued right now.

What is being said about Santos shares?

Analysts at Goldman Sachs have been running the rule over the company's quarterly update and were pleased with what they saw. They said:

STO reported 21.9 mmboe production 4% above our estimates on higher throughput at PNG, and reiterated that growth projects Barossa and Pikka remain on schedule and budget which are key to driving a significant FCF inflection from 2026.

5 Barossa wells have now been drilled and flowed back where early production testing indicates reservoir properties at the higher-end of pre-drill expectations, offshore pipeline tie in to Darwin LNG is progressing alongside SURF installation awaiting FPSO hook-up for first gas in 3Q25. The BW Opal FPSO remains in Singapore for pre-commissioning activities ahead of tow away expected shortly.

Big return potential

In light of the above, the broker remains very positive on Santos shares and is urging investors to buy them while they are down.

According to the note, Goldman has retained its buy rating on its shares with an improved price target of $7.85. Based on its current share price of $5.61, this implies potential upside of 40% over the next 12 months.

To put that into context, a $10,000 investment would turn into $14,000 by this time next year if Goldman is on the money with its recommendation.

And that doesn't include dividends! The broker is forecasting a 12 US cents per share dividend in FY 2025 and then a 29 US cents per share dividend in FY 2026. This equates to 3.3% and 8% dividend yields, respectively.

Goldman concludes by highlighting three key reasons why it is bullish on Santos shares. It said:

We are Buy rated on STO on: Attractive valuation: Trading at ~0.8x NAV, with ~40% of growth projects comprising our NAV we see lower risk of schedule delays and capex increases eroding our valuation. Strong near term production growth: Start-up of Barossa expected in 2H25 and Pikka in early 2026 provide a ~30% production uplift or 10% production CAGR over 3 years, providing earnings momentum to offset softening global gas prices. Improving returns: Trading on a ~14% 2026E FCF yield which could support at least an 8% dividend yield paid out of STO revised FCF return policy as key growth projects Barossa and Pikka begin contributing to earnings.