Shares in retail conglomerate Woolworths Group Ltd (ASX: WOW) are up nearly 2% in early trading on Tuesday, fetching $35.25 a share at the time of writing.
It’s been a mixed bag for Woolworths so far in 2022, with its shares dropping 7% in the red after a shaky start to the year.
This has effectively erased the bulk of gains earned over the last 12 months. The Woolworths share price is now around 2% in the green during that time.
Below is a chart of the retailer’s recent performance against the S&P ASX 200 Index (ASX: XJO).
However, one broker is seeing past the short-term noise and is urging its clients to buy Woolworths with an upside potential of around 14% as at today’s opening price. JP Morgan outlines four reasons for buying Woolies shares in its investment analysis on the company.
Is Woolworths a buy?
Analysts at JP Morgan tip Woolworths to have a bumper year in 2022.
The broker’s analysis centres around Woolworths’ core operations that, it says, held strongly during the pandemic or have firmly recovered from its effects.
The first buying factor boils down to growth in key segments like food (fresh and perishable) and operating cash flows, JP Morgan says.
“Food LFL [like for like] sales growth supported by local, online and ongoing execution capabilities, as Woolworths continues to execute across its strategy of convenience, fresh and range,” analysts say.
“Operating leverage, falling COVID-19 costs and lower labour inflation are supports for EBIT margin expansion.”
Secondly, the Everyday Needs segment is performing well and is a key differentiator to Woolworths’ earnings and, therefore, the investment case, the broker says.
“The Everyday Needs ecosystem leverages and extends the competitive advantages of the Food business, while adding to [its] earnings growth.”
Thirdly, Big W, the company’s chain of discount department stores, has apparently shown a strong turnaround and “has been a positive”, according to the broker.
That’s important to consider, analysts say, seeing as department stores across the country were severely impacted by COVID-19 lockdowns. It seems Big W has passed the broker’s litmus test for “further opportunity due to DC [distribution centre] and store network optimisation”.
Finally, JP Morgan believes Woolworths is at the tip of the spear when it comes to its online platform, suggesting the group has a better offering in the post-COVID world.
Analysts believe this could put Woolworths in an above-market growth position, tipping its online penetration could easily more than triple in FY22.
“We view Woolworths’ market-leading online platform favourably and see sustained levels of high online penetration post-COVID. After a period of normalisation, we expect online penetration to continue to grow to ~14% over the next five years (versus 4.2% in CY19),” the broker concluded.
JP Morgan rates Woolworths a buy and values the company at $39.50 per share, suggesting a potential for decent upside should its thesis play out.
Woolworths share price snapshot
In the last 12 months, the Woolworths share price is up around 2%, however, is down 7.2% this year to date.
During the past 30 days of trading, Woolies shares have risen around 2% but are down marginally over the past week. With these returns, Woolworths is trailing the broad index’s performance this year.
The post 4 reasons why top broker says Woolworths (ASX:WOW) shares are a buy right now appeared first on The Motley Fool Australia.
Should you invest $1,000 in Woolworths Group right now?
Before you consider Woolworths Group, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Woolworths Group wasn’t one of them.
The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of January 13th 2022
- ASX 200 dives to 4-day low following Ukraine nuclear power plant crisis
- Why Infomedia, Newcrest, Piedmont Lithium, and Woolworths shares are rising today
- Here’s why the Woolworths (ASX:WOW) share price is sliding today
- 5 things to watch on the ASX 200 on Thursday
- February was positive for the Woolworths (ASX:WOW) share price. Here’s why
Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
from The Motley Fool Australia https://ift.tt/Y9i3aJD