The Woolworths Group Ltd (ASX: WOW) share price could be set to surge in FY21 thanks to a one big change in the FY21 Federal Budget…
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The Woolworths Group Ltd (ASX: WOW) share price has been a strong performer this year. But thanks to Tuesday’s Federal Budget, I think it could be set to soar in the next 12 to 18 months.
How has the Woolworths share price performed this year?
Shares in the ASX conglomerate have edged 2.3% higher this year after rocketing in the March bear market. It may not sound like much, but that means Woolworths has outperformed the S&P/ASX 200 Index (ASX: XJO) by 12.1% in 2020.
Strong sales from its supermarkets division have been key to offsetting weak performance in its pubs business caused by the coronavirus pandemic.
A 2.3% gain is good news for shareholders but I think it could be just the start of a strong run for the Woolworths share price.
Why the ASX conglomerate share can surge next year
Tuesday’s Federal Budget contained some great news for businesses like Woolworths and competitor Coles Group Ltd (ASX: COL).
The government unveiled its $74 billion JobMaker hiring scheme designed to reduce unemployment. A cornerstone of that scheme is incentives and subsidies to hire unemployed young workers which would slash wage costs for participating companies.
For businesses like Woolworths and Coles that have a significant young workforce, that is great news for the bottom line. Reduced expenses means higher net profits and therefore strong earnings available for shareholders.
That could be all that’s needed for the Woolworths share price to outperform in the next year or so. Add to that the continued strong supermarket sales and easing restrictions across the country and, to me, Woolworths looks like a solid buy right now.
The Woolworths share price has had a strong run in 2020. However, I think strong government support and a potential pickup in its pubs business could see Woolies’ earnings surge in FY21.
With diversified operations across the group and a renewed focus on automation and efficiency, Woolworths could be back in the buy zone.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.