The Woolworths Group Ltd (ASX: WOW) share price has been in the doldrums of late.
After trading close to $37.00 in August, the supermarket giant's shares are now languishing 20% lower than this at $29.36.
This follows concerns over legal action from the ACCC and the release of a softer than expected quarterly update.
Is the Woolworths share price good value now?
The team at Bell Potter has been running the rule over the company and has given its verdict on its share price.
According to the note, the broker doesn't see enough value in the supermarket operator's shares at present to recommend it as a buy just yet.
It has initiated coverage with a hold rating and $31.75 price target on its shares. This implies potential upside of 8% for the Woolworths share price over the next 12 months before dividends.
And if you include the expected fully franked dividend yield of 3.2% in FY 2025, the total potential return increases to just over 11%.
What did the broker say?
Goldman has described FY 2025 as a year of consolidation for Woolworths. It said:
Since FY20 WOW has generated CAGR earnings growth of +7.9% p.a. while paying out 80% of cumulative profits in ordinary dividends lifting to 87% with inclusion of special (vs. a target of 70-75%).
Looking forward we anticipate FY25e to be a year of consolidation, with headwinds in discretionary categories (Big W and B2B Australia) mitigated by a continued shift in Australian food consumption to in-home channels. Beyond FY25e, we would anticipate a resumption of growth as discretionary sectors recover and WOW cycles off commissioning costs related to investments in automated distribution and customer fulfilment facilities (ADC/CFC).
And while Bell Potter acknowledges that the Woolworths share price trades at a discount, it still isn't as cheap as Coles Group Ltd (ASX: COL). And given sector headwinds and legal action by the ACCC, it doesn't see a reason to be more bullish at this stage. The broker concludes:
The recent share price correction in WOW following the commencement of legal action by the ACCC and softer 1H25 guidance in the Food business, sees WOW trade at a ~12% discount to its R2YA multiple. However, the greater relative exposure of WOW to discretionary categories that are likely to face sector headwinds in the near term and the modest trading premium to COL, sees us initiate with a Hold rating.
