Woolworths Valuation: Comparable Companies Analysis

Woolworths is a household retail name. It controls many other brands such as Big W, Dan Murphy’s and is a direct competitor to Wesfarmers. In fact, the rivalry between these two conglomerates is in the news a lot.

I decided to do some comps analysis to value Woolworths’ stock. The peer group I chose for this analysis includes Wesfarmers and the Myer Group. While the Myer group is perhaps not the best peer, I thought that it operated in a space that was close enough to allow it into this peer group.

I have chosen to use EV/Revenues, EV/EBIT and P/E ratios on a last fiscal year, and two forward years basis with Bloomberg Terminal being the source I used for the estimates.

The Comps Analysis will be included as an Excel download on this blog post.

Multiples tables

As we can see, the multiples for Woolworths fall somewhere in the middle of the peer group. Currently, Woolworths is trading at $27.39. Backing into the implied stock price by the peer group multiples, we get the following chart

Football Field

The biggest thing that I see that the P/E methodology is valuing Woolworths much higher. On average, I would value Woolworths at about $25. This is due to the negative outlook from analysts, probably due to the arrival of Amazon into the Australian market. As a matter of interest, the P/E in 2018 and 2019 would suggest the same thing. In 2018, the upper valuation using P/E is $18.45 and the upper valuation in 2019 is $17.9. Using these numbers, it definitely places Woolworths stock at closer to $15. Below is the chart including these numbers

second football field

Using a rough average, the stock price is pulled down to somewhere in the $15-$17 range.

Woolworths is definitely in my ‘not to buy’ category at the moment. Their future outlook is not good and the arrival of competitors to their business such as Amazon on the Big W front, and Aldi on the groceries side puts Woolworths in a challenging position going forward, with margin being driven ever lower by the price wars.

If you would like to see the Comps workbook, please see below.

Comps Analysis


Disclaimer: This is, in no way, investment advice and should not be construed as such. You should always do your own research before making any investment.

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