The Woolworths Group Ltd (ASX: WOW) share price was a positive performer on Wednesday following the release of its half year results.
The retail conglomerate’s shares overcame the market weakness and rose 1% to $39.50.
This leaves the Woolworths share price trading within sight of its record high of $42.97.
How did Woolworths perform?
For the six months ended 31 December, Woolworths reported a 10.5% increase in revenue to $35.8 billion and a 15.9% increase in net profit after tax to $1,135 million.
This was driven by strong sales growth across all businesses, with the exception of its COVID-impacted Hotels.
Management notes that Australian Food, BIG W, and Endeavour Drinks all reported sales growth well above trend.
Can the Woolworth share price go higher?
According to a note out of Goldman Sachs, its analysts believe the Woolworths share price is close to peaking.
This morning the broker reaffirmed its neutral rating but lifted its price target to $41.40.
Based on the current Woolworths share price and Goldman’s dividend forecast, this price target implies a potential total return of 7.7% over the next 12 months.
What did Goldman say?
Goldman was pleased with its half year results. It said:
“Woolworths reported 1H21 revenues of A$35.9bn, +10.6%, EBIT increased 10.5% to A$2092mn (+7.1% vs. GSe), implying an EBIT margin of 5.8% (flat on pcp). The larger divisions of Aus and NZ Food and Endeavour Drinks performed in line; however, Hotels and Big W significantly outperformed.”
“The recovery in Hotel EBIT precedes the timing of the Endeavour Group separation, which WOW now expects to take place by mid-year with documents to be released in 4QFY21. We see this as an important potential catalyst, given a separation would help facilitate a capital management event for the core supermarket operations.”
Looking ahead, Goldman Sachs has upgraded its earnings and dividend forecasts. It explained:
“We have upgraded FY21E EBIT by 7.6% to A$3.67bn, reflecting the stronger than expected earnings conditions for Hotels and Big W. We raised FY22E EBIT 3.0% to A$3.84bn. Lower interest expense has increased our upgrade at the NPAT level to 12.7% in FY21E and 6.2% in FY22E. Dividend forecast has been increased to A$1.13 for FY21E and A$1.20 for FY22E.”
And while this has supported an increase in its price target to $41.40, there isn’t enough upside in the Woolworths share price to warrant a change of rating.
Goldman appears to prefer Coles Group Ltd (ASX: COL) at current levels. The broker has a buy rating and $20.70 price target on its shares.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
The post Is the Woolworths (ASX:WOW) share price in the buy zone after its results? appeared first on The Motley Fool Australia.
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