Woolworths Group Ltd (ASX: WOW) shares are pushing higher on Thursday afternoon.
At the time of writing, the supermarket giant's shares are up almost 1% to $30.86.
Can Woolworths shares keep rising?
The good news for investors is that one leading broker believes that the company's shares still have plenty of gas left in the tank.
According to a note out of Goldman Sachs this morning, the broker has responded to Woolworths' half year results by retaining its buy rating and $36.10 price target on its shares.
Based on its current share price, this implies potential upside of 17% for investors over the next 12 months.
In addition, the broker is forecasting a fully franked dividend yield of 2.9% in FY 2025. This boosts the total potential 12-month return to approximately 20%.
To put that into context, a $20,000 investment in Woolworths' shares would turn into $24,000 by this time next year if Goldman is on the money with its recommendation.
What did the broker say?
Goldman was relatively pleased with the company's half year results. Although its profits were slightly below expectations, it thinks the market overlooked a major cost reduction plan. It said:
WOW reported 1H25 results with AU Foods slightly below GSe, and the guidance of AU Foods MSD EBIT decline (25wk comparable, including A$70mn non-recurring supply chain costs) was taken negatively by the market despite an announcement of a A$400mn support center cost out plan in FY26.
Commenting on the half to come, Goldman said:
2H25 AU Foods EBIT: on reported basis, we factor in -8.5% YoY to A$1,386mn, which adjusting for impact of one less week in 2H25 and A$70mn supply chain costs in 2H25 (A$20mn in 2H24) implies underlying EBIT decline of -1.5% or ~30bps of EBIT margin erosion. Based on discussion with management, we expect that this to be resulting largely from price-investments to recover market share while little of the A$400mn announced productivity will be realized.
As for the cost out plan, the broker said:
A$400mn to support office productivity: while little detail on specific use was given on the call, based on the limited information provided we factor in A$150mn CODB benefit in FY26 resulting in EBIT uplift. We believe that a refocus on execution basics and productivity could drive improvement in consumer sentiment post the ACCC Inquiry, as well as improved funding to help market share recovery and Retail Media.
Overall, Goldman continues to see plenty of value in its shares at 22x estimated FY 2026 earnings and a very strong earnings per share (EPS) growth outlook. It concludes:
Reflecting above, we revise our FY25/26/27e group sales by ~0% and EBIT by -5%/-2%/-1%. We reiterate Buy as we see early signs of a refocus on productivity and increased precision execution driving promotional effectiveness. Our A$36.10/sh TP implies FY26e 22x P/E vs LT avg of 24x vs FY25-27e EPS growth of 20%.
