The Block Inc (ASX: SQ2) share price looks likely to drop into the red on Thursday.

This follows the release of the payments company’s second quarter update this morning.

Block share price expected to tumble amid soft guidance

• Total quarterly revenue down 6% year over year to US$4.4 billion
• Quarterly gross profit up 29% year over year to US$1.47 billion
• Adjusted EBITDA down 48% to US$197 million
• Net loss of US$208 million
• Growth expected to moderate early in Q3

What happened during the quarter?

For the three months ended 30 June, Block reported a 6% reduction in revenue to US$4.4 billion. This reflects a decrease in bitcoin revenue, which offset a 34% in revenue excluding the cryptocurrency.

Block’s gross profit came in at US$1.47 billion for the quarter. This was a 29% increase year over year and up 47% on a three-year compound annual growth rate (CAGR) basis.

Excluding its Afterpay buy now pay later (BNPL) platform, gross profit was US$1.32 billion. This was up 16% year over year and 42% on a three-year CAGR basis.

Block’s growth was driven by solid performances from its Square ecosystem and Cash App business. Both reported gross profit growth of 29% to US$755 million and US$705 million, respectively.

The food and drink channel was the highlight for the company. It has achieved the fastest gross profit growth of any Square vertical on a five-year CAGR basis. Through the first six months of 2022, gross payment volume (GPV) from Square for Restaurants more than doubled year over year.

How does this compare to expectations?

The good news is that Block’s gross profit was in line with the market’s expectations and its revenue was a touch ahead.

That was despite Block’s gross payment volume of US$52.5 billion missing the market consensus estimate of US$53.47 billion.

However, it may not be enough to stop the Block share price from being sold off today. That’s because of the company’s disappointing outlook commentary.

Outlook

Management is expecting its growth to moderate during the early part of the third quarter of FY 2022.

It advised that Square GPV is expected to be up 18% year on year in July. This compares to 25% growth during the second quarter.

And worryingly, the company didn’t commit to a percentage growth figure for the Cash App business. It only expects “to grow on a year-over-year” basis.

Finally, management warned that it operating expenses are expected to increase by US$75 million in the third quarter compared to the second quarter.

In after-hours trade on Wall Street, the Block share price is down 7%.

The post Block share price in danger of sinking following Q2 update appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Why is the Block share price charging 10% higher on Thursday?
• Why are ASX 200 tech shares having such a stellar run today?
• Why is the Block share price leaping 5% on Wednesday?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. 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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Last month the Suncorp Group Ltd (ASX: SUN) share price stormed higher following the announcement of a divestment.

The insurance giant’s shares finished the day 6% higher at $11.78 after it agreed to sell its banking business to Australia and New Zealand Banking Group Ltd (ASX: ANZ).

Since then, however, the Suncorp share price given back half of these gains, closing Thursday’s session at $11.46.

Why is the Suncorp share price backtracking?

Investors have been selling the insurer’s shares after its divestment received a lukewarm response from a number of analysts.

For example, the team at Citi have warned that the company’s sale could be dilutive to its earnings in the coming years. Citi commented:

We estimate SUN’s sale of its bank to ANZ would be ~9% dilutive in FY24E. It would also dilute RoE [return on equity] but materially increase return on tangible book. Overall, we see the bank sale as strategically sound but not one that adds materially to our estimated value.

In our view, it would, however, firm up value in its bank and pave the way for a material capital return, ACCC permitting. Shareholders can also hope for better medium-term returns from general insurance.

In light of this, the broker has reduced its earnings per share estimates as follows: FY22E: -15%; FY23E: -4%; FY24E: -13%.

It’s not all bad news

The good news, though, is that the broker still sees plenty of value in the Suncorp share price despite this.

It has retained its buy rating with a trimmed price target of $13.00. This implies potential upside of 13.5% over the next 12 months. Citi concluded:

Despite several current headwinds and tailwinds that we discuss inside, we still forecast expanding margins and continue to see reasonable value. We retain our Buy call.

The post Why has the Suncorp share price gone backwards since the ANZ takeover news? appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today
• What might the ANZ deal mean for Bank of Queensland shareholders?
• ANZ to buy Suncorp’s banking business, and real wages going backwards. Scott Phillips on Sky News First Edition
• What might ANZ’s Suncorp deal mean for competition among ASX 200 banks?
• ‘CBA and Westpac are too big’: One fund manager’s take on the future of ASX 200 bank shares

Motley Fool contributor James Mickleboro 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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If you’re interested in gaining some exposure to the healthcare sector, then Healthco Healthcare and Wellness REIT (ASX: HCW) shares could be for you.

That’s because the team at Goldman Sachs believes the healthcare property company’s shares have major upside potential.

What did Goldman say about this healthcare share?

Goldman is very bullish on Healthco Healthcare and Wellness REIT’s shares and has reiterated its conviction buy rating with a $2.20 price target.

So, with its shares currently changing hands at $1.66, this implies potential upside of 33% for investors over the next 12 months.

In addition, the broker is forecasting a 4.5% dividend yield in both FY 2022 and FY 2023. This lifts the total 12-month return to ~38%.

5 reasons Goldman is bullish

Goldman Sachs has named five reasons that it is bullish on the Healthco Healthcare and Wellness REIT share price.

These include the company’s strong balance sheet, robust demand for its properties, and the attractive valuation of its shares following a period of underperformance. The broker explained:

Year-to-date, HCW has underperformed the REIT index by ~7% as concerns over the macro environment and rising rates have impacted HCW’s share performance. However, the REIT remains one of our top picks in the sector given:

1) its net cash position with over $450mn of liquidity, providing flexibility for near term opportunities, 2) its diversified mix of strong tenant covenants in sub-sectors that are majority government-backed across the care spectrum, mitigating potential tenant credit risks, 3) Healthcare and childcare assets valuations have remained resilient, 4) the expansive forecast future demand for assets across the care spectrum, underpinning development opportunities, and 5) inexpensive valuation, trading below its IPO share price and an ~18% discount to NTA.

And while Goldman acknowledges that there are risks from higher capital costs, it believes the risk/reward on offer is compelling enough to support its conviction buy rating.

Whilst we acknowledge risks remain we believe the current valuation provides an attractive entry point. HCW offers a potential 12m total return of +c.39% at our revised 12-m A$2.20 TP. We maintain our Buy (on CL) rating.

The post 5 reasons to buy this ASX healthcare share: Goldman Sachs appeared first on The Motley Fool Australia.

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• 2 ASX shares in a sector ready for a massive comeback

Motley Fool contributor James Mickleboro 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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All eyes will be on the Commonwealth Bank of Australia (ASX: CBA) share price next week.

On 10 August, Australia’s largest bank will be releasing its highly anticipated full-year results.

Ahead of the release, let’s take a look to see what the market is expecting from the banking giant.

What is the market expecting from the CBA result?

According to a note out of Goldman Sachs, its analysts are expecting the banking giant to outperform consensus expectations with its second-half cash earnings.

The broker has pencilled in cash earnings from continued operations (before one-offs) of $4,742 million for the six months. This will be a 1% decline on the prior corresponding period, but ahead of the consensus estimate of $4,546 million.

This will take its full-year cash earnings to $9,488 million for FY 2022, up 9.7% year over year.

From these earnings, Goldman Sachs is expecting the bank to pay a 205 cents per share fully franked final dividend. Interestingly, despite forecasting higher than consensus earnings, the broker’s estimate is lower than the consensus estimate of 208 cents per share.

Goldman’s estimate would mean a full-year dividend of 380 cents per share, up 8.6% on FY 2021’s payout.

What else should you look out for?

Outside its earnings and dividend, arguably the key focus for investors will be CBA’s net interest margin (NIM). Goldman is expecting an improvement in this metric thanks to the rising cash rate. It explained:

We estimate CBA’s 3Q22 NIM was 1.87%, and supported by the early benefits of cash rate rises. We estimate a 2H22E NIM of 1.88%. However, we expect the market will focus more on any updated commentary around the leverage of its NIM to cash rate rises and/or commentary around exit NIMs.

In addition, the broker is expecting the bank’s asset quality to remain strong. It said:

Despite rising interest rates, high inflation, and supply chain disruptions, asset quality has remained strong with CBA reporting a BDD contribution of A$48 mn (-2 bp of total loans) in 3Q22 driven by a slight reduction to credit provisions. For us, the key focus will be around how CBA frames its downside and severe scenarios as part of its expected credit losses (ECL) modeling, which we suspect will need to shift from scenarios based around Covid-lockdowns, to be more focused around stagflation.

Is the CBA share price good value?

Unfortunately, Goldman Sachs continues to believe that the CBA share price is overvalued at the current level.

It has retained its sell rating and $90.45 price target on the bank’s shares.

The post Own CBA shares? Here’s what to expect from the bank’s FY22 results appeared first on The Motley Fool Australia.

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• Which ASX 200 shares will prove to be dividend heavyweights this earnings season?
• First mover: CBA share price rises amid interest rate changes
• Here is the RBA interest rate outlook according to ASX 200 banks
• How are ASX 200 bank shares responding to the RBA rate increase?
• Up 10% in a month, is the CBA share price now fully valued?

Motley Fool contributor James Mickleboro 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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ASX shares involved in lithium production have been so hot in recent years that it’s difficult to find cheap buys these days.

But Wilson Asset Management analyst Cooper Rogers reckons he’s found a major resources company where the market is materially undervaluing its lithium operations.

“Mineral Resources Limited (ASX: MIN)’s a buy for us,” he said in a Wilson video.

“Their mining services division is underwritten for a 10% growth on their EBITDA line next year, along with that, we really do like the lithium business.”

Lithium, which is highly sought after for its role in modern batteries, could be a massive cash cow for the company in the coming years.

“We think [the lithium business] is undervalued versus its peers,” said Rogers.

“We think the MD Chris Ellison is going to come out of the full-year result and outline a really strong strategy for that division… that’s a catalyst for this stock to re-rate.”

The company’s preliminary results are scheduled to report on Wednesday.

The Mineral Resources share price has fluctuated widely in 2022, as mining stocks do. It is currently about 5.3% down from the start of the year.

(Almost) everyone reckons this stock is a buy right now

Rogers is not the only one bullish on Mineral Resources Limited.

According to CMC Markets, 10 out of 11 analysts recommend it as a buy. Nine of those 10 rate Mineral Resources as a strong buy.

Last week, The Motley Fool reported that Citibank analysts have a buy rating on the stock and a price target of $73.

That’s a nice 31.5% premium on the Thursday closing price of $55.50.

“Citi is positive on Mineral Resources due to its exposure to iron ore and lithium,” wrote James Mickleboro.

“Its analysts expect the price of the latter to stay higher for longer thanks to strong demand and tight supply.”

Bell Potter has a $75 price target for similar reasons to Rogers.

“Bell Potter is bullish on Mineral Resources due largely to its lithium business,” The Motley Fool reported last week.

“The broker is expecting this side of its business to start yielding increasing returns from FY 2023.”

The post Buy this ASX share for its ‘undervalued’ lithium business: expert appeared first on The Motley Fool Australia.

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More reading

• Top brokers name 3 ASX shares to buy next week
• Brokers name 3 ASX shares to buy today
• Here are the top 10 ASX 200 shares today
• Mineral Resources share price on watch following Q4 update
• How much has Mineral Resources paid in dividends over the last 5 years?

Motley Fool contributor Tony Yoo 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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The Objective Corporation Limited (ASX: OCL) share price was a strong performer on Thursday.

The information technology software and services company’s shares stormed 7% higher to end the day at $16.60.

Why did the Objective Corp share price shoot higher?

The catalyst for the strong gain by the Objective Corp share price appears to have been a bullish broker note out of Goldman Sachs.

According to the note, the broker has upgraded the company’s shares to a buy rating with an improved price target of $18.90.

Based on the current Objective Corp share price, this implies potential upside of 14% for investors over the next 12 months even after yesterday’s strong gain.

What did the broker say?

One of the reasons that Goldman is bullish on the company is its Regworks offering, which it believes has a major total addressable market (TAM). Goldman explained:

While more difficult to quantify based on the broad applicability of Objective RegWorks (regulatory compliance software) across public sector use cases, we are attracted to the large potential market opportunity. OCL estimates its RegTech addressable opportunity at A$27bn, based on the administrative burden of regulation. Given the wide reach of regulation across all parts of the economy and layers of government, arguably RegWorks has the largest TAM of any part of OCL’s product suite per our estimates.

In addition, the broker believes that recent weakness in the Objective Corp share price has created an attractive entry point for investors. Particularly given its forecast for an earnings per share compound annual growth rate of 20% between FY 2022 and FY 2025

Since initiating in April, we highlight two key developments driving our more constructive view: (1) a more attractive entry point, with the shares now having de-rated -40% since late 2021; and (2) increased conviction around OCL’s growth outlook as new products scale. We now see OCL’s valuation as attractive compared to SaaS peers after adjusting for its growth outlook and conservative accounting policies (all R&D expensed).

The post Goldman Sachs just slapped a buy rating on this ASX tech share appeared first on The Motley Fool Australia.

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• Expert says Telstra is a blue chip ASX 200 share to buy
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• Brokers name 2 ASX dividend shares to buy now
• 3 reasons this broker says Woolworths shares are a strong buy
• The retailer that’s a ‘recession-proof’ ASX share to buy: analyst

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Objective Corporation Limited. 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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If you’re looking to bolster your portfolio with some blue chip ASX 200 shares, then it could be worth considering telco giant Telstra Corporation Ltd (ASX: TLS).

Why is Telstra a blue chip ASX 200 share to buy?

Analysts have become bullish on this telco giant this year after its transformative T22 strategy delivered on expectations and underpinned a return to growth in FY 2022.

For example, commenting on its first half results earlier this year, the team at Morgans said:

TLS’s 1H22 result showed the second consecutive half of underlying growth, with underlying EBITDA up 5%, underlying EPS up substantially and the DPS flat yoy. Mobile was the star performer. Performance is tracking in the right direction and FY22 guidance was re-iterated.

And with the company’s T22 strategy soon to be replaced with the growth-focused T25 strategy, the company’s outlook is now arguably the best it has been in a decade.

This is particularly the case given the increasingly rational competition in the mobile market, the ongoing adoption of average revenue per user (ARPU)-boosting 5G internet by consumers, and its recent acquisition in the pacific.

Where are its shares heading to from here?

Morgans currently has an add rating and $4.56 price target on its shares. Based on the latest Telstra share price of $4.00, this implies potential upside of 14% for investors over the next 12 months.

But it gets even better for investors. Morgans continues to forecast fully franked dividends per share of 16 cents in both FY 2022 and FY 2023.

Based on where its shares are trading today, this will mean attractive 4% yields for investors in both years. This stretches the 12-month total return on offer with its shares to a sizeable 18%.

The post Expert says Telstra is a blue chip ASX 200 share to buy appeared first on The Motley Fool Australia.

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• ‘Competition is key’: Why Telstra shares are in the ACCC naughty corner today
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• Top brokers name 3 ASX shares to buy next week
• Why this ASX 200 giant ‘looks attractive’ right now: expert
• Why is the Telstra share price lagging the ASX 200 on Thursday?

Motley Fool contributor James Mickleboro 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 Telstra Corporation Limited. 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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Although it doesn’t make the front page of newspapers any more, the COVID-19 pandemic unfortunately refuses to go away.

In fact, hospitalisations and deaths were disturbingly up the past few weeks as Australians battled through winter.

So despite more than two years having passed since the S&P/ASX 200 Index (ASX: XJO) hit its coronavirus panic trough, many post-COVID recovery stocks have yet to reach their full potential.

This is great news for investors, as it’s not too late to buy into some of these ASX shares.

In fact, some of them have discounted nicely in 2022 as the general market malaise dragged them down.

Here are three to buy, as nominated by Wilson Asset Management analysts:

Travel’s back. And busier than before the pandemic

The sector most obviously hit by the pandemic has been the travel industry.

While online travel agent Webjet Limited (ASX: WEB) has seen its share price double since the dark days of 2020, senior analyst Shaun Weick feels like there’s plenty more upside.

“Webjet’s a buy for us,” he said in a Wilson video.

“If you look at consensus analyst estimates on this name, you’re essentially implying a recovery to pre-COVID in the second half of 2023. We think that’s too conservative.”

Webjet has its financial year end each March, so had already reported on its results back in May, when it revealed it had returned to profitability.

“We think the market’s underappreciating the technology investments that they’ve made and the upside that provides.”

3 reasons why CSL will go gangbusters

While CSL Limited (ASX: CSL) had made a lot of money for investors for decades, the pandemic period has been lean.

Its blood plasma collection business in North America took a massive hit due to lockdowns and people generally wary of physically visiting donor centres.

Its share price, therefore, has still yet to approach its pre-COVID high.

But Wilson analyst Anna Milne reckons that’s all about to turn around.

“Firstly, there’s the Behring business, which is plasma-derived products — that’s been under-earning for a number of years now, and we think it’s really just starting to hit its straps,” she said.

“Sequiris is the vaccine business… it’s been a pretty horrendous flu season Down Under and we think that’ll probably translate to the same in the northern hemisphere.”

Then there’s the new $16.4 billion Vifor Pharma business, which CSL put in a takeover offer for late last year.

“The Vifor transaction, which has been delayed, but management is still very confident that it’s going to close and we’re really excited about the pipeline of drugs there,” said Milne.

“So CSL’s a buy.”

CSL will reveal its preliminary results on 17 August.

Strong assets and a lucrative market reopening?

Winemakers are not obvious COVID victims, but Treasury Wine Estates Ltd (ASX: TWE) would argue very much that it was.

Back in 2020, the Australian government demanded an international enquiry into the origins of COVID-19. Beijing took exception to this and placed punitive tariffs on certain Australian imports.

And China was one of the largest markets for Treasury Wine at the time.

The stock price plunged, and the company attempted to diversify its markets to restore its revenues.

Milne feels like the company can put its woes behind it now.

“Firstly, it’s got a really strong asset backing. It’s got the wine itself, then it’s got the vineyards — so that provides a bit of a backstop to the share price in these kinds of volatile environments,” she said.

“Additionally, I don’t want to speak too soon, but with a new Australian government, it does like China-Australia relations might be having a bit of a cautious reset.”

Treasury Wine will report its annual results on 18 August.

The post 3 ASX 200 shares to buy for a post-COVID resurgence: experts appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Friday
• ‘We are in for the long haul’: Rio Tinto CEO defends future spending in the face of recession fears
• NRW share price leaps 11% on guidance upgrade for FY22
• Which ASX 200 shares will prove to be dividend heavyweights this earnings season?
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Tony Yoo has positions in CSL Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. The Motley Fool Australia has recommended Treasury Wine Estates Limited and Webjet Ltd. 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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If you’re an income investor then you might want to read on. Listed below are two ASX dividend shares that have just been rated as buys by brokers.

Here’s what they are saying about these top ASX dividend shares:

Janus Henderson Group (ASX: JHG)

The team at Bell Potter think that this fund manager could be a dividend share to buy. It has a buy rating and $43.50 price target on the company’s shares.

While Janus Henderson has been facing a number of challenges, the broker believes that now could be the time to buy before the tide turns.

It explained:

Falls in investment markets have reduced AUM and profitability. The appearance of an activist investor has not led to corporate activity which may have disappointed some investors. The change of CEO means a new strategy and that will take time to deliver tangible results.

But now might be a good time to revisit: markets should start to recover; the company has a new direction and there is still the prospect of M&A (we feel JHG could easily be swallowed by a larger group).

As for dividends, the broker is forecasting dividends per share of 190 cents in FY 2022, 172 cents in FY 2023, and 181 cents in FY 2024. Based on the current Janus Henderson share price of $36.33, this will mean yields of 5.2%, 4.7%, and 5%, respectively.

Stockland Corporation Ltd (ASX: SGP)

Analysts at Goldman Sachs are positive on Stockland. It is a residential and land lease developer and retail, logistics and office real estate property manager. The broker has just initiated coverage on Stockland with a buy rating and $4.44 price target.

Goldman likes Stockland due to its refreshed corporate strategy and attractive valuation. The broker explained:

We believe that investor concerns regarding the housing cycle are reflected in current pricing. Furthermore, we believe SGP is progressing on its recently refreshed corporate strategy, noting that recycled proceeds from the completed sale of its low returning Retirement division provides flexibility to accelerate its commercial development pipeline and its Communities (including Land Lease) business and see the shares as attractively valued both relative to peers and historically.

SGP currently trades at a ~10% discount to last stated NTA (vs. LT average of ~1.14x), and at a FY23 FFO multiple of ~12x (vs. our REIT coverage average of 17x).

In respect to dividends, the broker is forecasting dividends per share of 26.6 cents in FY 2022, 26.7 cents in FY 2023, and 26.9 cents in FY 2024. Based on the current Stockland share price of $3.86, this will mean yields of 6.9%, 6.9%, and 7%, respectively.

The post Brokers name 2 ASX dividend shares to buy now appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Can ASX dividend shares deliver during earnings season?
• Could ASX earnings season be ‘a lot better than what the market is positioned for’?

Motley Fool contributor James Mickleboro 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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The Woolworths Group Ltd (ASX: WOW) share price could be good value at current levels.

That’s the view of the team at Goldman Sachs, which recently reiterated their buy rating and $40.50 price target on the company’s shares and added them to the broker’s coveted conviction buy list.

Why does Goldman think that Woolworths shares are a strong buy?

There are three key reasons that Goldman Sachs is bullish on Woolworths’ shares.

The first is the broker’s belief that Woolworths will deliver strong earnings growth between FY 2022 and FY 2024. This is thanks to the strength of its key Australian supermarkets business. It said:

Superior growth in core business: we forecast CAGR of 6.6% and underlying NPAT of 14.1% over FY22-24e, with key driver being market share gain of AU Foods business at comp sales growth of FY23/24 8.8% and 6.6% respectively driven by effective cost-price pass through and additional mix improvement with relatively stable volume growth. This implies that EBIT margins will be well protected, and we forecast 50bps increase to 5.0% to FY24e.

Another reason for its positive stance is the retail media business. Goldman believes this relatively underappreciated business has a material growth opportunity with strong margins. The broker explained:

Adjacent revenues with higher margins: with a highly loyal consumer base and high frequency contact points, we believe that the retail media business is the next material growth lever for WOW. We have factored in A$1.1B sales, with 30% EBIT margin (unchanged) in 2030 and discounted value of A$4B adds ~6% to WOW’s EV.

Finally, the broker sees value in the Woolworths share price at the current value and feels that a rerating to higher multiples is possible. It said:

Valuation re-rating: since 2018, WOW has traded at an average 1yr fwd P/E of 25.7x, vs COL (Neutral) of 21.6x, with average multiple premium of 4.0x. Currently, WOW is at 24.3x, with multiple premium at 1.8x, its lowest level since 2018, and we believe this is unwarranted as we see WOW to be still the superior operator with faster growth outlook. We expect better comps and margin management to become apparent, and the stock to re-rate.

The post 3 reasons this broker says Woolworths shares are a strong buy appeared first on The Motley Fool Australia.

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More reading

• The Woolworths share price leapt 5% in July, what’s in store now?
• Does rising inflation put the Woolworths share price in the buy zone right now?
• Have Woolworths shares been a market-beating investment over the past 5 years?
• Broker names 2 ASX dividend shares to buy next week
• Own Woolworths shares? Here’s what a top broker is saying about its latest acquisition

Motley Fool contributor James Mickleboro 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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