Why this top broker thinks the Woolworths share price is cheap

Woolworths shares could be great value after recent declines…

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Woolworth share price upgrade response to asx share price represented by hands holding up the word wow

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The Woolworths Group Ltd (ASX: WOW) share price has taken a bit of a tumble in recent weeks.

Since this time last month, the retail giant’s shares have fallen over 10%.

This has left the Woolworths share price trading within touching distance of a 52-week low.

Is the weakness in the Woolworths share price a buying opportunity?

According to a note out of Goldman Sachs, its analysts think that investors should be taking advantage of this share price weakness.

This morning the broker has reiterated its buy rating and $41.70 price target on the company’s shares.

Based on the current Woolworths share price of $34.47, this implies potential upside of 21% for investors over the next 12 months.

What did the broker say?

Goldman has been busy looking deeply into the grocery industry in recent weeks and its channel checks have revealed that trading remains strong despite rising inflation.

It explained:

We have conducted a series of channel checks in the last 2 weeks with key grocery industry participants (FMCG suppliers, fresh wholesalers, freight and logistics solution providers, SimilarWeb online traffic update). Bottom line: we see continued resilience in the grocery space, where most players have not seen a noticeable change in consumer behaviour.

We are encouraged by the resilience and superior operations of WOW and reiterate our unchanged FY22-24e Sales and EPS CAGR of 6.9% and 14.9% respectively. We expect this to be driven by high price growth, well protected GPM and slight EBIT margin expansion as COVID costs roll-off and cost efficiencies continue.

In light of this, the broker feels that the recent weakness in the Woolworths share price has created a buying opportunity. Particularly given that its shares are trading at their lowest valuation premium to the Coles Group Ltd (ASX: COL) since its spinoff from Wesfarmers Ltd (ASX: WES) in 2018.

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 and Wesfarmers Limited. 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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