It is fair to say that 2024 hasn't been kind to the Woolworths Group Ltd (ASX: WOW) share price.
Concerns over market share losses, allegations of price gouging, ACCC legal action, and a supermarket inquiry have weighed heavily on the retail giant's shares.
Will things be better for Woolworths shares in 2025? Let's find out.
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Woolworths share price outlook
There certainly is a lot to watch next year. But the team at Goldman Sachs believes that all the potential bad news is more than priced into the Woolworths share price right now.
As a result, its analysts feel that 2024's weakness is 2025's buying opportunity. Commenting on the supermarket inquiry, which is likely to be the number one concern for investors, the broker said:
None of the listed areas of further deep-dive are a surprise based on the initial scoping/material submitted to ACCC and channel checks; our discussion with the channel suggests 2 issues would be most in-focus i.e. 1) price-establishment (as flagged by separate ongoing legal proceedings between the ACCC and WOW/COL) and 2) retail site access as entry barriers.
Whilst from a retail competition perspective, the ACCC highlighted the aggregate WOW AU Food(A$51B)/COL Food(A$39B) market share in Australia National Take-Home Food & Grocery sales was 57.3% in 2022/23 vs 53.6% in 2006/07 (+3.7%), it does exclude grocery sales from "category specialists" including Chemist Warehouse (FY24 Network Sales of A$9B) and Amazon (GSe CY23 GMV ~A$6B) as well as Bunnings pushing into consumables categories including Cleaning and Pet.
Net net, while we do not take any view on the final outcome, we remain of the view that earnings and valuation risks from the Inquiries are sufficiently priced in and reiterate Buy WOW and Neutral COL.
How big could the returns be?
According to a recent note, the broker sees scope for the Woolworths share price to deliver mouth-watering returns in 2025.
Its analysts currently have a buy rating and $36.20 price target on the supermarket giant's shares.
Based on its current share price of $30.36, this implies potential upside of 19% for investors between now and this time next year.
In addition, the broker is expecting a fully franked 96 cents per share dividend in FY 2025. This represents an attractive 3.15% dividend yield, which boosts the total potential return beyond 22%.
Commenting on its buy rating, the broker said:
Our Buy thesis is based on 1) robust supermarkets growth of ~4% in FY23-26E driven by strong population growth and a rational, oligopoly environment; 2) omni-channel leader further extending share gains due to its early mover advantage in digitalization and omni-channel execution.
By 2030E, we expect WOW to be the dominant leader in online with ~50% share in a space that is expected to go from 5% to 10% of the total grocery market; 3) loyalty/retail media further margin opportunities: Woolworth's strong digital and omni-channel advantage is further reinforced through a virtuous cycle of loyalty and retail media (Cartology). WOW is also trading below fair value.
