Woolworths Group Ltd (ASX: WOW) shares could generate big returns for investors over the next 12 months.
That's the view of analysts at Goldman Sachs, which see lots of value on offer with the supermarket giant's shares.
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Buy Woolworths shares
Goldman likes Woolworths due to its defensive qualities and strong customer loyalty. It believes this leaves it well positioned in the current environment.
And with Woolworths shares trading at a discount to historical averages, the broker thinks now is the time to buy. 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.
Goldman has a buy rating and $40.20 price target on the company's shares. This implies potential upside of 18.5% for investors over the next 12 months.
In addition, it expects fully franked dividends of approximately $1.10 per share to be paid out over the period. This comprises FY 2024's final dividend and FY 2025's interim dividend.
Based on its current share price, this will mean a 3.25% dividend yield, which stretches the total potential 12-month return to approximately 22%.
What about all the CEO changes?
Goldman notes that Woolworths has just lost its supermarkets CEO, Natalie Davis. She will be leaving the company in September along with outgoing group CEO Brad Banducci.
The broker isn't concerned by the exits, believing that Banducci's replace, Amanda Bardwell, has the skillset to drive Woolworths to the next level of growth. The broker also highlights that there is plenty of talent in the industry for the company to find a new supermarkets CEO. It explains:
We think Ms Davis' resignation may not come as a surprise to the market, after Ms Bardwell's appointment as CEO in Feb 2024. Having headed up Woolies X, we believe that Ms Bardwell will bring the skillset and experience to drive WOW to the next level of growth, with a likely focus on digital-led omni-channel sales and eco-system growth drivers, including scaling of growth and margin accretive initiatives such as Retail Media. We estimate that Woolies X has driven ~50% of Australia Foods sales growth and ~50% of EBIT growth over FY20-24e.
Our discussions with industry participants suggests that the talent pool in more traditional supermarket retail/commercial operations is deep, suggesting options for filling the post of MD of Woolworth Supermarkets. As such we would not expect a materially negative impact to the Australian Foods business for WOW from Ms Davis' departure.
All in all, this could make Woolworths shares worth considering if you're looking for new additions to your portfolio.
