The Woolworths Group Ltd (ASX: WOW) share price has fallen significantly over the past year, as the chart below shows. Currently, it has declined 16% over the past 12 months.
However, the Woolworths share price has lifted more than 10% since I called it out as a solid buy in early May.
I believe it's still an attractive opportunity, with more upside in its recovery and longer-term growth.
Ongoing sales growth
The strong sales tailwinds of COVID-19 demand and inflation appear to have subsided. However, the company continues to deliver revenue growth.
In the third quarter of FY24, Australian food sales increased 1.5% to $12.6 billion, while Australian business-to-business (B2B) sales rose 3.2% to $1.1 billion. Total third-quarter sales (including New Zealand and BIG W) sales rose 2.8% to $16.8 billion.
Despite cycling against a very strong FY23 third quarter, where Australian food sales rose 7.6%, Woolworths' supermarkets were still able to report growth.
It also reported that adjusted' sales growth in April was "broadly in line" with the third quarter, with inflation continuing to moderate and the number of items sold showing "ongoing modest growth".
Considering the current economic conditions, I think Woolworths' recent resilient sales performance has demonstrated its strong market position.
Strong e-commerce results
Woolworths is achieving excellent growth with its e-commerce sales, and if this growth could continue, it could play a more significant role in accelerating growth and helping support the Woolworths share price.
In the FY24 third quarter, WooliesX (which includes e-commerce) grew 17.8% to $1.63 billion.
Woolworths said its e-commerce sales penetration reached 12.4%, an increase of 178 basis points (1.78%) over the prior year.
With the ongoing digitalisation of the economy, Woolworths is leading the way when it comes to online food shopping. Coles Group Ltd (ASX: COL) reported $856 million of e-commerce sales in the FY24 third quarter, much less than Woolworths.
I think Woolworths' digital sales can be an important driver of earnings in the coming years.
Solid long-term earnings growth projected
I don't believe Woolworths is the type of business that will deliver extraordinary earnings growth — supermarket retailing is usually consistent year to year. However, Woolworths is projected to deliver net profit after tax (NPAT) of $1.63 billion in FY24 and $1.64 billion in FY25.
However, after FY25, the broker UBS predicts that Woolworths' earnings will rise at a good pace in the next few years.
UBS suggests the company's net profit could rise 7.4% to $1.76 billion in FY26, lift 11.6% to $1.96 billion in FY27 and then rise 10.8% to $2.18 billion.
Those numbers suggest the Woolworths share price is valued at 25x FY24's estimated earnings and 19x FY28's estimated earnings.
It's also projected to pay a grossed-up dividend yield of 4% in FY24 and 5.5% in FY28.
With good profit growth projected in the coming years, I'd say the Woolworths share price is a solid buy at the current level.
