The Woolworths Group Ltd (ASX: WOW) share price has been a positive performer in 2020.
Since the start of the year, the retail conglomerate's shares are up a solid 9%.
Can the Woolworths share price go higher from here?
One broker that believes Woolworths shares are fully valued now is Goldman Sachs.
This morning the investment bank reiterated its neutral rating and $39.90 price target.
This price target implies potential upside of 1% over the next 12 months excluding dividends and approximately 3.5% including them.
What did Goldman Sachs say?
Goldman Sachs recently met with Woolworths' management and notes that there were a few key takeaways from the meeting.
One was that inflation has started to ease but continues in categories other than fresh. This has led to downtrading in categories like red meat, but premiumisation continues in categories like beer, wine, and spirits.
Pleasingly, competition remains rational, with most retailers passing through inflation to customers. Woolworths hasn't seen much of a shift towards value, except in certain demographics and geographies. Promotional programs are back to prior levels
In respect to its online business, Goldman advised that management noted good take-up of the subscription model with reasonable retention. Work is being undertaken to unlock more delivery windows and capacity. Its micro fulfilment centres are in the early stages but are showing good signs so far.
Another key takeaway was the improving performance of its BigW business. It notes that the closure of speciality stores during lockdowns led to customers coming back into BigW. Management expects BigW to gain some of the share that it had lost in recent years.
So why isn't Woolworths a buy?
Given this positive feedback, investors may be wondering why Woolworths is not being rated as a buy.
The reason for this is its current valuation, particularly in comparison to rival Coles Group Ltd (ASX: COL).
The broker commented: "WOW is delivering a consistent performance across online and in-store and also looks well positioned as further capacity is made available for online. The prospect of capital management over the next 12 months should also provide support for the stock, despite its elevated P/E multiple versus COL."
It currently has a buy rating and $20.50 price target on Coles' shares.
