Is it possible that the Woolworths Group Ltd (ASX: WOW) share price could rise to $45 by the end of 2021?
At the moment the supermarket giant is sitting at around $40. In the middle of August 2021 it had reached up to $42.
But can it rise by approximately 12.5% before the end of the 2021 calendar year?
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Broker opinions on the Woolworths share price
Most brokers don't think Woolworths is a buy right now, with several price targets around the $40 mark. That effectively means that they don't think that Woolworths shares are going to go anywhere over the next 12 months.
But there are a couple of opinions that are a bit different than that.
Credit Suisse has a sell on the company, with a price target of around $31. That suggests the broker believes that Woolworths shares are going to drop by more than 20% over the next 12 months. It thinks it's overvalued for its expected earnings and potential (limited) growth. Using Credit Suisse's forecast, the Woolworths share price is valued at 32x FY22's estimated earnings.
But there is a broker with a $45 price target – Ord Minnett. However, that's where the broker sees the Woolworths share price being in 12 months, not in the next two or three months. The thought is that supermarkets could see continued elevated levels of sales for longer because of COVID-19.
How is the supermarket business trading?
The FY21 announcement was the latest trading update that investors received.
FY21 total group sales were up 5.7% to $67.3 billion in FY21, with e-commerce sales up 58.1% to $5.6 billion. Group earnings before interest and tax (EBIT) increased 13.7% to $3.66 billion, whilst group net profit rose 22.9% to $1.97 billion. Within that, Australian food sales grew 5.4% and the EBIT rose 9% to $2.4 billion.
In terms of FY22, in the first eight weeks, Australian food sales were up 4.5% and Big W sales were down 15.1% (after a strong performance at the start of FY21 and store closures in FY22). For New Zealand, it said the two-year average growth had "continued to improve" with "some benefit to sales from recent lockdowns".
The Woolworths annual general meeting is on 27 October 2021, so investors are likely to get an update for the first quarter of FY22 in that presentation.
Share buy-back to help the Woolworths share price?
When Woolworths announced its FY21 result, it also announced that it was returning $2 billion of capital to shareholders with an off-market share buy-back. The completion of the demerger of Endeavour Group Ltd (ASX: EDV) and repayment of intercompany loans provided a catalyst for a detailed review of capital management options.
The leadership said that this capital return reflected a strong balance sheet and its franking credit balance, whilst allowing it to continue to invest in its businesses.
Woolworths said the buy-back would be done through a tender process.
