Is the Woolworths share price in the buy zone ahead of next week’s Q3 update?

Woolworths is releasing its third quarter update next week…

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A female Woolworths customer leans on her shopping trolley as she rests her chin in her hand thinking about what to buy for dinner while also wondering why the Woolworths share price isn't doing as well as Coles recently

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Key points

  • Woolworths is releasing its third quarter update next week
  • Goldman Sachs expects the retail giant to report stronger growth than rival Coles
  • The broker believes this makes Woolworths shares a buy at current levels

The Woolworths Group Ltd (ASX: WOW) share price will be one to watch closely next week.

This is because the retail giant is scheduled to release its third quarter sales update on Tuesday 3 May.

What is the market expecting from Woolworths?

According to a note out of Goldman Sachs, it analysts are expecting Woolworths to deliver a stronger third quarter update than what rival Coles Group Ltd (ASX: COL) reported earlier this week.

In case you missed it, for the 12 weeks ended 27 March, Coles reported sales growth of 3.9% over the prior corresponding period to $9.3 billion.

Goldman is expecting Woolworths to better this with group sales of $14.7 billion for the three months. This will be a year on year increase of 6.4%.

The broker explained: “We forecast 3Q22 group sales to be at A$14.7bn, up +6.4% yoy. We expect the Australian and New Zealand foods division to report +4% and +5.5% comparable growth respectively and for BigW to see -6% decline in comparable sales. We forecast e-commerce sales for Australian Foods segment to be at A$1.2bn, representing c. 10.2% of divisional sales.”

Is the Woolworths share price in the buy zone?

Goldman Sachs still sees value in the Woolworths share price at the current level.

The note reveals that its analysts have a buy rating and $40.50 price target on its shares currently.

Based on the current Woolworths share price of $38.57, this implies potential upside of 5% for investors over the next 12 months.

Furthermore, Goldman is expecting the company to pay fully franked dividends of 93 cents in FY 2022 and 111.4 cents in FY 2023. This represents yields of 2.4% and 2.9%, respectively.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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