The Woolworths Group Ltd (ASX: WOW) share price came under pressure on Thursday.
The retail giant's shares ended the day over 3% lower at $36.20 after investors responded poorly to its full year results.
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Is the Woolworths share price weakness a buying opportunity?
The team at Goldman Sachs believe that investors should take advantage of the weakness in the Woolworths share price.
According to a note this morning, the broker has reiterated its conviction buy rating with an improved price target of $44.10.
Based on the current Woolworths share price, this implies potential upside of 22% for investors over the next 12 months.
In addition, Goldman is forecasting a fully franked 3% dividend yield in FY 2023, which stretches the total potential return to a very attractive 25%.
What did Goldman say?
Goldman was pleased with Woolworths performance in FY 2022. It highlights that the company's "results were of high quality with AU supermarket comp store growth of 5.2% in 4Q22 driven by strong price and positive mix." Pleasingly, the broker expects this trend to extend into the first half of FY 2023.
The broker also notes that management's tone was cautiously optimistic on the investor call and "believes that FY24, under normal operating backdrop, will be the year which it begins to win scale benefits of its earlier investment into digital and consumer data, at a time when other competitors are just beginning."
Goldman's top retail pick
Overall, Goldman Sachs has seen enough to support its view that the company is the top pick in the Australian consumer space. Particularly with the Woolworths share price offering such material upside potential. It concludes:
We continue to prefer WOW as the top pick in our AU Consumer space given the company's digital and omni-channel advantage to further drive market share and margin gains. Despite the softer topline environment, we believe that WOW's reducing COVID costs, strong Cartology growth as well as careful execution will result in EBIT margin expansion. Our 50/50 SOTP and DCF valuation is unchanged and rolled forward to FY24. Our 12m TP increases from A$40.5/sh to A$44.10/sh, implying 24% share price upside. Reiterate Buy, on CL.
