Looking at the Woolworths Group Ltd (ASX: WOW) share price right now, is it a buy or sell?
Woolworths shares have gone down 11.6% since the start of the year. Over the past six months it has fallen 18%. This has reversed the gains made in the second half of 2021.
In the last year, the Woolworths share price is slightly up, with a 1.6% gain.
What's going on?
There was a steep sell-off of Woolworths shares on 14 December 2021 down to $37.45.
The supermarket business released a trading update about the first half of FY22.
It said that after the easing of lockdowns in New South Wales and Victoria during October, sales in 'Australian food' had moderated as customers return to more normal shopping habits. Total sales in the first half to the middle of December were up 3%.
But, it also said direct COVID costs in Australian food are expected to be approximately $150 million. On top of that, there has been indirect disruption to stores and distribution centres from operating in a COVID environment that has led to elevated operating costs of approximately $60 million to $70 million in the half.
Supply chain costs were also impacted by higher volumes, fuel price increases and the impact of balancing supply across distribution centres on the eastern seaboard.
E-commerce sales are still growing strongly. Online sales were up 50% in the half. While the profitability of e-commerce continues to improve, e-commerce sales are lower margin, which together with a decline in-store sales, has impacted overall profitability in the half.
Australian food FY22 first half earnings before interest and tax (EBIT) is expected to be between $1.19 billion to $1.22 billion (down from $1.31 billion last year).
Australian food may have the biggest influence on the Woolworths share price, but there are other divisions to keep track of.
Big W sales in the second quarter were stronger than the first. Second quarter sales were down 3.3% year on year, though first quarter sales were down 17.5%. Big W first half EBIT is expected to be $20 million to $30 million (down from $133 million).
New Zealand food sales growth was "strong" as it benefited from lockdowns and higher inflation.
The Woolworths share price also suffered during the broader share market correction in January 2022.
Is the Woolworths share price a buy or sell?
Opinions are mixed on the business.
Ord Minnett thinks that Woolworths shares are a buy, with a price target of $39.60.
However, Credit Suisse rates the business as a sell, with a price target of just $30.87. The broker thinks the growth outlook is slowing and is not confident that Woolworths' profit margins won't be affected by inflation. Inflation could also impact the retailer Big W.
Based on Credit Suisse FY22 estimates, the Woolworths share price is valued at 33x FY22's estimated earnings with a grossed-up dividend yield of 3.1%.
Using Ord Minnett projections, Woolworths shares are valued at 30x FY22's estimated earnings with a grossed-up dividend yield of 3.5%.
