Woolworths Group Ltd (ASX: WOW) shares are trading lower again on Thursday.
At the time of writing, the supermarket giant's shares are down 1% to $33.17.
This means that its shares are now down 8% over the last two trading sessions.
Investors have been hitting the sell button in response to a softer than expected half-year result and news that its CEO, Brad Banducci, has fallen on his sword and is quitting the role later this year.
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Should you buy Woolworths shares?
The team at Goldman Sachs believes this recent weakness has created a buying opportunity for investors.
According to a note from this morning, the broker has retained its conviction buy rating with a trimmed price target of $40.40. This implies potential upside of 22% for investors over the next 12 months.
And with the broker forecasting a fully franked 3.3% dividend yield in FY 2024, the total potential return stretches beyond 25%.
What did the broker say?
Goldman was a touch underwhelmed with Woolworths' results but saw enough to remain positive on the company. It explains:
WOW reported 1H24 with +10% EBIT in AU Foods YoY the key bright spot, though this was dragged by weaker-than-expected H2 first 7 weeks AU Foods sales growth of +1.5% and further guidance of a slower EBIT growth in 2H. Additionally, the ongoing ACCC pricing inquiry and earlier-than-expected announcement of CEO Brad Banducci's retirement weighed on the share price.
Goldman also believes the above overshadowed its new growth engine – the Woolies X business. It said:
Woolies X the scaling new growth engine: The segment (eCom + Digital & Media and Rewards & Services and Homerun) grew DAP by A$96mn vs. pcp, contributing to 68% of 1H24 AU Foods EBIT growth. This has been central to our Buy thesis – that the continued scaling of the company's omni-channel offer and advanced data and analytics capabilities to drive high growth/high margin ancillary services such as Retail Media will drive strong growth and returns above peers.
In 1H24, eCom DAP margin reached 3.2% and Digital Media DAP margin (on external revenue) reached 36.3%. Our channel checks suggest that WOW leads this growth lever by multiple years and management confirmed that eComm sales has larger baskets, higher GPM (due to long-life products skew).
All in all, the broker believes now could be an opportune time to snap up a high-quality company and a great price.
