Could Woolworths shares beat the market in FY25?

FY24 hasn't been kind to the supermarket giant. Will things be better in the next financial year?

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Over the last 12 months, Woolworths Group Ltd (ASX: WOW) shares have underperformed the market

During this time, the supermarket giant's shares have lost 16% of their value. As a comparison, the ASX 200 index is up 6.5% over the same period.

So, unless there's a significant rally over the remainder of this month, it's looking like FY 2024 is going to be one to forget for shareholders.

But will things be better in FY 2025? Let's have a look.

Will Woolworths shares perform better in FY 2025?

The next financial year looks set to be an eventful one for Woolworths and its shares.

This is because the supermarket industry is currently being looked at by regulators due to price gouging allegations.

It's fair to say that the outcome of these inquiries could have a major say in the performance of Woolworths shares.

In fact, the bullish analysts at Goldman Sachs have named it as a risk factor for investors to consider. They said:

Key downside risks: Worse AU food volumes, increase in competitive intensity, online sales underperformance, retail media benefits not materializing, poor management of cost inflation. Worse than feared ACCC inquiry outcomes.

But if all goes to plan, Goldman sees big returns on the cards for investors in FY 2025.

Big return potential

According to a recent note out of the investment bank, its analysts have a conviction buy rating and $39.40 price target on its shares.

If Woolworths shares were to end the financial year where they currently trade and then rise to that level in FY 2025, it would mean a very attractive return of 18% for investors. In addition, a ~3% dividend yield is expected over the next 12 months.

Goldman thinks the company's shares are great value right now. Especially given its defensive qualities. It said:

WOW is the largest supermarket chain in Australia with an additional presence in NZ, as well as selling general merchandise retail via Big W. We are Buy rated on the stock as we believe the business has among 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 its ability to pass through any cost inflation to protect its margins, beyond market expectations. The stock is trading below its historical average (since 2018), and we see this as a value entry level for a high-quality and defensive stock.

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 positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. 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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