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Why this top broker thinks the Woolworths (ASX:WOW) share price can break new record highs

Woolworth share price upgrade response to asx share price represented by hands holding up the word wow
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The party may not be over for the Woolworths Group Ltd (ASX: WOW) share price as JPMorgan upgraded the supermarket giant.

The upgrade means that the Woolworths share price could soon be re-testing last February’s record high of $43.45.

The ASX share has outperformed its archrival. The Coles Group Ltd (ASX: COL) share price has been virtually flat over the past year when the Woolworths share price jumped nearly 14%.

The gain isn’t as impressive as the Metcash Limited (ASX: MTS) share price, which rallied 31% over the period.

Woolworths share price could reach new highs

But the Woolies share price may not have peaked, according to JPMorgan. The broker lifted its recommendation on Woolworths to “overweight” with a 12-month price target of $45 a share.

“Woolworths is likely to sustain market share gains at the expense of Coles due to the tailwinds of local, which could last longer than expected, and online, a structural growth opportunity,” said JPMorgan.

“Coles could accelerate online investment at the expense of dividends but this is unlikely.”

Technology provides sustainable edge

This personally reminds me of how the Commonwealth Bank of Australia (ASX: CBA) share price outruns the other ASX big banks over the long-term.

CBA has a technology edge as it invests more in IT, and that is one of the key reasons why it can keep ahead of the pact over the many years.

But there are three other reasons why JPMorgan is bullish on the Woolworths share price.

Three other reasons to buy the Woolworths share price

First is Woolworths ability to leverage on the Food and Everyday Needs ecosystem. The supermarket giant enjoys superior economies of scale in its food business and can generate incremental revenue streams with not much investment.

Then there is the potential turnaround of its Big W department store business. There are early signs that the struggling business has turned a corner after years of lacklustre performance.

Finally, JPMorgan points to the expected sale of its drinks and hotels division, Endeavour Group.

Not only will the divestment mean a potential capital return for investors who are eagerly eyeing the $2 billion plus of franking credits on Woolies’ balance sheet, but cutting Endeavour Group is likely to drive increased demand in the Woolworths share price from ESG-focused investors.

Talk about a double win!

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Motley Fool contributor Brendon Lau owns shares of Commonwealth Bank of Australia and Woolworths Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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