Is the Woolworths (ASX:WOW) share price in the buy zone?

The Woolworths Group Ltd (ASX:WOW) share price could be in the buy zone according to one leading broker. Here’s what you need to know…

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The Woolworths Group Ltd (ASX: WOW) share price was out of form on Tuesday despite the release of an announcement.

The retail conglomerate’s shares edged 1% lower to $41.63.

What did Woolworths announce?

On Tuesday Woolworths announced that it is investing $223 million to increase its stake in data science and advanced analytics business Quantium from 47% to 75%.

Woolworths notes that the two parties have been working together closely since 2013 following an original investment of $20 million for a 50% stake.

Since then, the partnership has enabled Woolworths and its supplier partners to make customer-first decisions across pricing, ranging, and promotions.

What’s next?

Following the completion of the transaction, Quantium will form part of Woolworths Group, and a new business unit called Q-Retail will be established.

Q-Retail will bring together Quantium and Woolworths Group’s collective data science and advanced analytics capabilities with a focus on delivering against the company’s advanced analytics aspirations.

Is the Woolworths share price in the buy zone?

One leading broker that has responded positively to the news is Goldman Sachs.

It commented: “The transaction is expected to complete prior to the end of the financial year. Upon completion, a new business unit Q-Retail is expected to be established focusing on advanced analytics for the Retail arms. No further details have been disclosed regarding the ambitions and objectives of this business unit, however we believe this will satisfy internal demands on data lead management as well as leveraging data IP through revenues to external parties.”

“We view this investment as a strategically aligned development in view of the increasing importance for data analytics and digital retailing in the industry. We make no changes to our estimates pending completion of the transaction,” Goldman added.

The broker has retained its buy rating and $43.60 price target on its shares. Based on the current Woolworths share price, this implies a potential total return of ~6.5% over the next 12 months including dividends.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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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