Insights

Is the Woolworths (ASX:WOW) share price a good defensive buy?

Is the Woolworths Group Ltd (ASX:WOW) share price an attractive buy as a defensive ASX share? Its shares have been rising recently.
The post Is the Woolworths (ASX:WOW) share price a good defensive buy? appeared first on The Motley Fool Australia. –

supermarket asx shares represented by shopping trolley in supermarket aisle

At the current Woolworths Group Ltd (ASX: WOW) share price, is it an attractive buy as a defensive ASX share?

Over the last month the Woolworths share price has risen by around 5.5%. It hasn’t moved much over the last 12 months, but its sales and earnings have been marching higher.

Recent FY21 half-year result

In the first half of its FY21, Woolworths saw continuing double digit growth.

Group sales went up 10.6% to $35.8 billion, with e-commerce sales increasing 78% to $2.94 billion. Online sales made up 8.2% of total sales, up from 5.1% in the first half of FY20.

The business saw group earnings before interest and tax (EBIT) grow by a similar rate, increasing by 10.5%.

However, group net profit after tax (NPAT) increased by 15.9% to $1.1 billion. Woolworths said that its operations continues to be impacted by COVID-19, with elevated sales and higher costs as the company worked to maintain a COVID-19-safe environment.

Looking at Woolworths’ different divisions, there was growth across most of them over the first six months of FY21. Australian food sales rose 10.6%, New Zealand food sales increased 2.9%, Big W sales went up 20.1% to $2.58 billion and Endeavour Drinks (including Dan Murphy’s) sales rose 19% to $5.68 billion. Hotels was the sales decline by 27.5% to $667 million.

EBIT growth was at a similar pace for most divisions, but Big W EBIT grew 165.7% to $133 million and hotels EBIT fell 45.4% to $122 million. Big W saw such a big EBIT increase because of strong sales growth, gross profit margin improvements and cost control, despite higher COVID-19-related costs. It also saw online sales increase by 120%.

The defensive ASX share pointed out that whilst sales slowed during the half – second quarter sales increased by 8.3% – it was still high single digits.

Woolworths has managed to keep growing, despite all of the disruptions it has faced since early 2020.

Outlook

The Woolworths share price is driven by profit and growth expectations.

In the first seven weeks of the second half of FY21, it has seen continuing strong sales growth, benefiting from continued at-home consumption, Australians not travelling abroad, and a weaker prior year where sales were impacted by bushfires on the east coast of Australia. However, growth rates have continued to moderate over the period in line with the overall market. COVID-19 costs are also coming down as restrictions ease.

Australian food total sales increased by approximately 8% in the first seven weeks.

The medium-term annual net target for Woolworths is 10 to 20 new full range supermarkets in Australia, with five to 15 Metro food stores.

Looking at the Endeavour Group, Woolworths is expecting to separate this business in June 2021, most likely through a demerger.

Woolworths said the divestment will lead to a simplified business, with a greater focus on its core food and everyday needs businesses and allow Endeavour to accelerate its own growth aspirations.

Is the Woolworths share price a buy?

The broker UBS rates the Woolworths share price as a buy with a price target of $44. It likes the possible shareholder returns that may be paid after the divestment of Endeavour – it thinks it still has long-term growth potential.

According to UBS, the Woolworths share price is valued at 27x FY21’s estimated earnings.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of February 15th 2021

More reading

Motley Fool contributor Tristan Harrison 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 good defensive buy? appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!