The Woolworths Group Ltd (ASX: WOW) share price was out of form on Thursday.
The retail giant's shares ended the day 4% lower at $32.05.
This followed the release of a mixed first quarter update from Woolworths.
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Is the Woolworths share price pullback a buying opportunity?
According to a note out of Goldman Sachs, its analysts believe the pullback has created a buying opportunity for investors.
This morning the broker has reiterated its conviction buy rating with a slightly trimmed price target of $41.70.
Based on the current Woolworths share price, this implies potential upside of 30% for investors over the next 12 months.
Goldman is also expecting a fully franked 3.2% dividend yield in FY 2023, sweetening the deal further for investors.
What did the broker say?
While Goldman was a little underwhelmed with Woolworths' first quarter update, it saw enough to remain positive. It said:
WOW reported 1Q23 sales largely in-line on Group basis though both AU Foods and NZ Foods came in slightly below expectations whilst AU B2B and Big W outperformed. The key underperformance vs GSe was AU Foods SSS being -1.1% (vs +3.0% GSe) largely coming from higher than expected volume decline YoY due to elevated prior year comps during lock-downs, which resulted in 1Q23 e-Comm sales -10.8% YoY.
After taking everything into account, including management's briefing, Goldman Sachs has trimmed its sales and earnings estimates for the near term. It explained:
On the back of this, we trim our FY23-25e sales by -1.3%-1.4% and NPAT by -5.3%-3.0% respectively. This is largely on a lower sales and EBIT outlook for NZ Food as well as s~2-3% lower AU Foods sales and EBIT on lower volumes in 1H23.
Overall, the broker believes investors should look beyond this update and focus on the quality of the company and its positive long term outlook. It concludes:
Despite a noisy and softer 1Q23, we remain confident that WOW is the superior operator within AU supermarkets with a clear growth pathway to deliver ~3% sales and ~9% NPAT FY22-25e CAGR. WOW is trading at 22.1x FY24E P/E vs our TP implied 27.8x and historical average of 23.2x, providing a value entry point to a quality player in our view. Reiterate Buy (on CL).
