Woolworths Group Ltd (ASX: WOW) shares could be trading at a very attractive level.
That's the view of analysts at Goldman Sachs, which have the retail conglomerate on their coveted conviction list.
What is the broker saying about Woolworths shares?
According to the note, the broker sees significant value in the Woolworths share price at the current level.
Its analysts have a conviction buy rating and $41.70 price target on its shares. This implies potential upside of 23% for investors over the next 12 months.
And to sweeten the deal further, the broker is expecting a fully franked $1.02 per share dividend in FY 2023.
This represents a 3% dividend yield, which stretches the total potential return to approximately 26%.
Solid growth ahead
Although Woolworths had a softer than expected start to FY 2023, the broker remains positive on the future and believes it is well-positioned for solid growth over the coming years.
So much so, it feels the level of growth it is forecasting means that Woolworths shares deserve to trade on higher multiples. It commented:
Despite a noisy and softer 1Q23, we remain confident that WOW is the superior operator within AU supermarkets with a clear growth pathway to deliver ~3% sales and ~9% NPAT FY22-25e CAGR. WOW is trading at 22.1x FY24E P/E vs our TP implied 27.8x and historical average of 23.2x, providing a value entry point to a quality player in our view.
This growth is expected to be driven partly by its high level of customer loyalty and omni-channel advantage. Goldman explained:
We are Buy rated (on Conviction List) on the stock as we believe the business has one of the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as pass through any cost inflation to protect its margins, beyond market expectations.
All in all, the broker appears to believe this makes Woolworths a blue chip to buy in 2023.
