Woolworths Group Ltd (ASX: WOW) shares are under pressure on Thursday.
In afternoon trade, the supermarket giant's shares are down 3.5% to $35.39.
One broker that is likely to see this as a buying opportunity is Goldman Sachs.
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Is it time to buy Woolworths shares?
According to a note from this morning, the broker believes that good returns could be on offer for investors that buy shares at current levels.
Goldman Sachs has responded to Woolworths' full year results release by reiterating its conviction buy rating with a slightly trimmed price target of $40.10 (from $40.20).
Based on its current share price, this implies potential upside of 13.3% for investors over the next 12 months.
In addition, the broker is forecasting a dividend yield of 3.1% in FY 2025. This boosts the total potential return beyond 16%.
What did the broker say about its results?
Goldman was pleased with the company's positive finish to the year. It commented:
4Q24 comps of +1.3% (vs COL of 1.2%) and positive volumes evidenced a refocus on daily execution. WOW's new CEO emphasized a focus on getting the basics right and delivering value for customers (value for money NPS still -5pts vs June 2023). Compared to 2Q/3Q 24, availability has improved, protein deflation passed onto consumers and Disney collectables program launched Aug 14th.
It also highlights that its Woolies X business continues to deliver the goods for the company and drive its earnings growth. Goldman said:
FY24 Woolies X sales was A$8.2B sales with 4.4% EBIT margin, contributing ~75% of AU Food EBIT growth. We forecast strong eComm sales of 14% CAGR FY24-27e with EBIT margin to 3.5% by FY27e and, in addition, we forecast Cartology and Ancillary services to deliver ~A$1B in FY30 and A$478mn EBIT contributing to 11% of AU Food EBIT.
Why buy its shares?
The broker has previously highlighted a few reasons why it thinks investors should be buying Woolworths shares. It explains:
We are Buy rated on the stock as we believe the business has among the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as its ability to pass through any cost inflation to protect its margins, beyond market expectations. The stock is trading below its historical average (since 2018), and we see this as a value entry level for a high-quality and defensive stock.
