Here’s why Morgans just upgraded Woolworths shares

Woolworths Group Ltd (ASX: WOW) shares are making headlines today following the company’s third quarter sales results released yesterday. 

The company reported a 4.5% lift in group sales to $18.1 billion for the third quarter, led by strong Australian Food sales up 5.9% and a 20.2% jump in eCommerce sales.

Additional results included: 

• New Zealand Food sales up 1.4% (NZD), with a challenging retail environment
• W Living division (BIG W and Petstock) sales up 4.8%; Petstock grew 15.9%
• Group Net Promoter Score (VOC NPS) of 47, up 3 points on March 2025.

However, investors were seemingly left wanting more as Woolworths shares crashed 10% on Thursday. 

At the time of writing, they have recovered just over 0.4% today. 

The team at Morgans see upside potential following yesterday’s strong sell-off. 

Here’s what the broker had to say. 

Sales update mixed 

Morgans said the 3Q26 sales trading update was mixed. 

Strong sales growth was offset by softer FY26 earnings guidance for Australian Food and NZ Food, as management chose to absorb higher fuel costs and invest in pricing. 

Management noted that value is becoming increasingly important, as customers become more cautious amid rising cost-of-living pressures. 

We reduce group FY26-28F underlying EBIT marginally by 1%. Our target price remains unchanged at $37.30. With a 12-month forecast TSR of 12%, we upgrade our rating to ACCUMULATE (from HOLD).

From today’s share price of $34.52, this share price target from Morgans indicates an 8% upside. 

Outlook mixed for Woolworths shares

Morgans noted that while absorbing higher costs and investing in pricing will weigh on margins in the near term, it believes this is the right strategy in the long-term as Woolworths works to improve its value perception with customers. 

These are levers within management’s control, and improving sales and volume momentum indicates the strategy is resonating. In an uncertain macro environment with soft consumer sentiment, WOW’s dominant market position and relatively defensive characteristics should support steady and resilient earnings growth.

It’s worth noting that not all brokers share the same outlook for Woolworths shares. 

Bell Potter downgraded the supermarket company’s shares to a hold (previously buy) following the sales results. 

It also downgraded its share price target to $35.50 (previously $38.25). 

The broker said food inflation looks to be returning which should be beneficial for the topline.

This looks largely offset by the margin impact of absorbing supply chain inflation, which is likely to be amplified in 4Q26e as a run rate into FY27e, where outcomes will be dependent on an easing in middle east tensions.

The post Here’s why Morgans just upgraded Woolworths shares appeared first on The Motley Fool Australia.

More reading

• The huge retail trend many are missing
• Bell Potter says this ASX real estate stock could rise 33%
• Why this leading broker just downgraded Woolworths shares
• 5 things to watch on the ASX 200 on Friday
• Top 10 ASX shares bought and sold in April

Motley Fool contributor Aaron Bell 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 positions in and has recommended Woolworths Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.