The Woolworths Group Ltd (ASX: WOW) share price closed higher today at $34.36, up 1.33% on yesterday's close.
Shares in the retail conglomerate have levelled off in 2022 after the company's share price plunge at the end of last year. Investors have seen their holdings come off 52-week highs of around $52 dollars to now trade near 52-week lows.
But not everyone is downbeat on Woolworths with one broker retaining its overweight stance on the retail giant. Let's take a look.
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Is Woolworths a buy in 2022?
According to analysts at JP Morgan, Woolworths looks attractively priced and offers long-term upside potential. The broker says that makes it a buy right now.
After some readjustments, analysts now value Woolworths at $39.60 per share, suggesting an upside potential of more than 15%.
The broker reckons that Food LFL [like-for-like] sales growth is supported by "local, online and ongoing execution capabilities, as Woolworths continues to execute across its strategy of convenience, fresh and range".
JP Morgan analysts also like Woolworths' operating leverage and that falling COVID-19 costs, and not lower labour costs, are supporting lifting operating margins.
But the broker also likes each of the other segments in Woolworths' portfolio, especially given the changing landscape of the sector.
"[The] Big W turnaround has been a positive with further opportunity due to DC [distribution centre] and store network optimisation," the broker said in a recent note.
However, analysts say visible challenges remain, particularly from ongoing cost pressures due to supply chain disruption, COVID-19 costs in early 2022, and higher wages from FY23 onwards.
Nevertheless, there are plenty of bullish signals that offset these headwinds in the broker's view.
"The Everyday Needs ecosystem leverages and extends the competitive advantages of the Food business, while adding to WOW earnings growth," analysts said.
The team also views Woolworths' "market-leading online platform favourably and see[s] sustained levels of high online penetration post-COVID".
With this in mind, analysts at JP Morgan forecast revenue of $60.5 billion in FY22, leading to a free cash flow conversion of $3.1 billion – both down on FY21.
The broker also sees return on equity (ROE), alongside other profitability measures, declining substantially over the coming periods. However, analysts say this is likely to return Woolworths' figures in line with long-term averages after the company's period of hyper-growth.
"After a period of normalisation, we expect online penetration to continue to grow to approximately 14% over the next five years," the broker said.
Woolworths share price snapshot
In the last 12 months, the Woolworths share price has fallen more than 6% and is down more than 10% since 2022 trading began on January 4.
The company has a market capitalisation of around $41.4 billion dollars at its current share price.
