The Woolworths Group Ltd (ASX: WOW) share price has been trading sideways since the announcement of a new acquisition last week.
This is despite the deal to acquire digital out of home media company Shopper Media Group for $150 million getting the seal of approval from a leading broker.
According to a note out of Goldman Sachs, in response to the deal, its analysts have retained their conviction buy rating and $40.50 price target.
Based on the current Woolworths share price of $36.98, this implies potential upside of almost 10% over the next 12 months.
What is the broker saying about Woolworths' latest acquisition?
Goldman Sachs was pleased with the deal, particularly given its positive view on the company's retail media business. It has previously spoken highly of this side of business and believes it has significant growth potential.
The broker commented:
We note that this transaction is strategically in line with our view of the retail media business being the next material growth lever for WOW. In our current model, we have factored in A$1.1bn sales, with 30% EBIT margin, in 2030 to be contributed from WOW's retail media business.
Moreover, discounting back valuations to 2023E after applying a EV/EBIT multiple of 20x, we value the retail media business at A$4bn in our SOTP, thereby contributing c.6% to WOW's EV.
Though, it is worth noting that the transaction isn't a done deal and remains subject to ACCC approval and the satisfaction of customary closing conditions. But if all goes to plan, completion is expected to occur by the end of calendar year 2022.
Why is Goldman bullish on the Woolworths share price?
Goldman is bullish on the Woolworths share price due to its belief that the company is well-placed for growth and trading on an attractive valuation. It concludes:
Our positive thesis on WOW is based on 1/ Superior growth expectations for the core business, 2/ longer term potential for adjacent revenues with higher margins and 3/ opportunity for valuation re-rating from current levels of low historical premium vs. COL.
