Woolworths Limited (ASX: WOW) shares are today extending the heavy losses they experienced yesterday following its first quarter report and trading update.
While its quarterly sales figure was down just 0.4% over the same period a year earlier, it's likely the forecast 28% to 35% fall in half-year profit did the majority of the damage to the supermarket giant's share price on Thursday.
Sure enough, analysts have rushed to downgrade their price target forecasts:
- Deutsche Bank: $23 – down 15%
- Goldman Sachs: $26 – down 5.5%
- Macquarie: $23.16 – down 16%
- Credit Suisse: $26.22 – down 5.8%
- UBS: $22 – down 8.3%
Is it time to buy Woolworths?
As Motley Fool contributor, Tim McArthur, wrote yesterday, "Until a new base level of earnings has been reliably established the stock price may continue to come under pressure."
The near-term outlook is undoubtedly a little uncertain. However, it's important to remember Woolworths is still a profitable and diversified business with a market capitalisation of $31 billion. Moreover, it is lowering prices for shoppers and countering the resurgent growth of Coles – owned by Wesfarmers Ltd (ASX: WES) – and Aldi.
Woolworths said it successfully invested an additional $100 million to lower prices during the quarter and launched a new market campaign. The company also stated average prices dropped 1.8% during the quarter.
After much speculation, it also dropped the expensive Qantas Airways Limited (ASX: QAN) Frequent Flyer program in favour of an internal loyalty offering for its Everyday Reward members.
While Woolworths is making changes to improve its offering; however, there is no guarantee it will successfully return to positive same-store sales and/or profit growth. Moreover, there is no guarantee it will do so anytime soon.
Buy, Hold or Sell
At today's price of $24.20, Woolworths' shares may be slightly undervalued, but they're no bargain. Indeed, there is a lot of negative sentiment sweeping over the supermarket sector at this time, so the shares are likely to remain volatile for the foreseeable future.
Moreover, until Woolworths appoints a new CEO, my advice would be to hold off buying shares.
