Are Woolworths shares good value in September?

There’s an emerging bull and bear case for Woolworths Group Ltd (ASX: WOW) shares, with analysts on both sides speculating on how the supermarket chain’s shares will perform this month and beyond.

Bulls assume higher margins and lower costs from the abatement of COVID-19 will send the Woolworths share price higher. While bears paint the opposite picture, stating that Woolworths’ earnings will lower by as much as 39% for the first half of FY23, as The Sydney Morning Herald reported on Wednesday.

First, for the bear case.

Analysts from JP Morgan said:

For 1H23, we forecast NZ Food EBIT (earnings before interest and taxes) to be down 39 per cent to NZ$123 million.

The team at Morgans notes that overall, the company remains a viable investment if the economy goes further south.

Morgans said:

“We continue to see [Woolworths] as a good, defensive business that should perform relatively well if macroeconomic conditions worsen.”

On the bull’s side, analysts from Citibank were more generous with their EBIT forecast. The team posted a note to clients after the company’s FY22 results were released on Thursday last week.

Citi said:

COVID costs declined to $18 million in 4Q22, well down from 3Q22 ($66 million) and 1H22 ($205 million). We assume $80 million of COVID costs in FY23e, thereby helping to drive the Australian Food EBIT margin up by 34 bps despite significant cost pressure.

Barrenjoey analyst Tom Kieratch also made bullish comments regarding Woolworths:

The easing of COVID impacts and greater management focus on costs look to have driven far better [second half] Food results vs the [first half].

The bottom line

The consensus these analysts reached was that Woolworths is facing significant cost pressures, and the company said so in its financial report for FY22. Some headwinds that are battering the stock include inflation, COVID-19, supply chain disruptions, team shortages, and natural disasters such as flooding.

Despite these problems, the Woolworths share price lept 9% on the day the company announced its results. Group sales climbed 9.2% to $60,849 million and EBIT was down 2.7% to $2,690 million.

Woolworths share price snapshot

The Woolworths share price is down about 5% year to date. The S&P/ASX 200 Index (ASX: XJO) is down about 10% over the same period.

The company’s market capitalisation is $44.21 billion.

The post Are Woolworths shares good value in September? appeared first on The Motley Fool Australia.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Matthew Farley 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 Scott Phillips.

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