Is the Woolworths Group Ltd (ASX: WOW) share price a buy?
The Woolworths share price is up more than 9% over the past six months, it has been a solid period for the major supermarket company.
I have been pleased with Woolworths' business progress in recent months. It has unlocked a lot of value for shareholders by selling its Petrol business with 540 fuel convenience sites to EG Group to $1.725 billion. Woolworths will still benefit by providing a wholesale food supply service to the fuel sites.
Woolworths said at the half-year result that it intends to return up to $1.7 billion of capital after the sale of the Petrol business is complete. This would be a welcome initiative for investors, particularly with a potential franking credits change looming.
The main part of Woolworths' business is the Australian supermarket segment. If that division does not grow profit then the company as a whole is not worth investing in.
In the first half of FY19 Woolworths food prices, excluding tobacco, fell by around 2.5%. This shows that food deflation continues and the food industry is a very competitive sector with Coles Group Limited (ASX: COL), Costco and Aldi. However, competition could grow further from Amazon Australia and the impending arrival of Kaufland.
But, despite the above issues, in the FY19 half-year result Woolworths Group continuing sales increased by 2.3%, continuing earnings before interest and tax (EBIT) went up 1% and continuing net profit after tax (NPAT) increased by 2.1%. The quality of the Woolworths business and strategy shone through with these numbers.
A bonus was that the company's online growth achieved was 30% in the first half of FY19. Online will become an increasingly important segment as the years go by.
Foolish takeaway
Woolworths is trading at 23x FY19's estimated earnings with projections of slow-and-steady earnings per share (EPS) growth over the next few years. It also has a grossed-up dividend yield of 5%.
I do believe that Woolworths will deliver a better return than cash over the next five years, but Woolworths is not trading at an attractive price to buy shares in my opinion.
