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Is the Woolworths (ASX:WOW) share price a buy after its Q3 update?

The Woolworths Group Ltd (ASX:WOW) share price was out of form on Thursday and sank lower. Is this a buying opportunity for investors?
The post Is the Woolworths (ASX:WOW) share price a buy after its Q3 update? appeared first on The Motley Fool Australia. –

The Woolworths Group Ltd (ASX: WOW) share price was a poor performer on Thursday.

The retail conglomerate’s shares fell almost 4% to $39.81.

Why did the Woolworths share price sink lower?

Investors were selling the company’s shares following the release of its third quarter sales update.

For the three months ended 31 March, Woolworths reported a 0.4% increase in group sales to $16,566 million.

This growth was driven by its BIG W and drinks businesses, which offset softer sales from its supermarkets.

Australian Food sales were down 0.7% on the prior corresponding period to $11,092 million, whereas New Zealand supermarket sales fell 6.9% in local currency to NZ$1,792 million.

What else?

Also weighing on the Woolworths share price was management’s outlook for the fourth quarter.

Woolworths’ CEO, Brad Banducci, warned: “Turning to current trading and outlook, sales growth for the first three weeks of April remained volatile and impacted by prior year growth rates and the timing of public holidays.”

“In Australian Food, total sales were broadly flat compared to last year. This reflects the cycling of mid-single digit sales growth in April last year in comparison to double-digit sales growth in May and June.”

Is this a buying opportunity?

According to a note out of Goldman Sachs, its analysts have seen enough in this result to retain their buy rating.

However, the broker has trimmed its price target to $43.10 after revising its near term earnings estimates slightly lower.

Based on the latest Woolworths share price, this implies potential upside of 8.3% over the next 12 months. And if you include the 2.8% dividend yield the broker is forecasting, this stretches to approximately 11%.

Goldman notes that Woolworths outperformed rival Coles Group Ltd (ASX: COL) during the quarter.

It said: “Woolworths’ 3Q21 update offered a mixed bag. Australian supermarkets reported comparable sales growth below GSe but c. 430bps outperformance vs. Coles Group underpinned by a c. 91% growth in the e-commerce business. While the trading into early April is lacklustre, we believe that the volatility on a weekly basis in pcp makes it difficult to draw any meaningful conclusions regarding performance vs. Coles Group.”

“Amongst the remaining divisions, Endeavour Group, BigW and Hotels reported sales ahead of GSe for the quarter while NZ supermarkets continued to underperform as the industry is impacted by border restrictions. Management expects to release the Endeavour Group demerger documents in mid-May, a potential catalyst for Woolworths Group.”

“Overall, we revise our NPAT forecasts by -0.1% and -1.3% over FY21 and FY22. Our revised 12m Target Price on WOW is at A$43.10, offering a potential total return of +11.1%. We maintain a Buy rating on WOW,” it concluded.

All in all, this could make it worth considering the Woolworths share price after yesterday’s weakness.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Is the Woolworths (ASX:WOW) share price a buy after its Q3 update? appeared first on The Motley Fool Australia.

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