How the Woolworths (ASX:WOW) share price has withstood today’s market selloff

The Woolworths Group Ltd (ASSX: WOW) share price was one of few ASX 200 shares to withstand today’s sharp sell-off. Here’s why.
The post How the Woolworths (ASX:WOW) share price has withstood today’s market selloff appeared first on The Motley Fool Australia. –

A drawing of a a superhero businessman in fron of a cityscape in silhoutte, indicating a share price earnings super cycle

The Woolworths Group Ltd (ASX: WOW) share price is one of few  S&P/ASX 200 Index (ASX: XJO) shares in the green today, up 1.09% to close at $40.98. 

Why is the Woolworths share price holding up?

The US market has experienced a defensive rotation into sectors including utilities and consumer stables while technology, communication services and consumer cyclicals are heavily sold down. A similar scenario looks to be playing out on the ASX today, with the S&P/ASX Consumer Staples (INDEXASX: XSJ) up 0.52%, in stark contrast to the S&P/ASX Information Technology (INDEXASX: XIJ) down 4.25%. 

Two announcements have also bolstered the supermarket giant’s shares. A demerger update and news from the Australian Competition and Consumer Commission (ACCC) regarding its proposed acquisition of foodservice supplier, PFD Food Services. 

Bullish broker notes on demerger 

Brokers have provided notes regarding yesterday’s update on Woolworth’s demerger plans with the Endeavour Group to create two independent and ASX-listed companies.

Macquarie noted that Woolworths would maintain an ongoing partnership with Endeavour and retain a 14.6% shareholding. The broker notes that Woolworths will have a positive net cash position of $75 million post demerger, while approximately $1.4 billion to $1.5 billion of net debt will sit with the Endeavour Group business.

With an improved balance sheet, the broker believes Woolworths will explore capital management options and may return up to $1.6 billion to $2.0 billion to shareholders. With that in mind, Macquarie retained an outperform rating with a target price of $44.50. 

Similarly, Morgan Stanley highlighted the plans for potential capital management. Its earnings estimates for the company remain unchanged, retaining its overweight rating with a $44.00 target price. 

Credit Suisse was the only broker note to retain a neutral rating. According to the broker, there weren’t many surprises in the demerger.

Credit Suisse views the potential return of $1.6 billion to $2.0 billion in surplus cash post demerger to be within investor expectations. Post demerger, the broker notes that Woolworths will be debt-free and is proposing capital management with its surplus cash position. A target price of $38.05 was maintained. 

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

Kerry Sun 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 How the Woolworths (ASX:WOW) share price has withstood today’s market selloff appeared first on The Motley Fool Australia.

Important Notice
Trade The US Market With ZERO Brokerage* + FREE Access To Trading Ideas & Value Analysis Tools. Click Here!