After announcing solid H1 headline numbers, shares of WOW have dropped over 1.5% in early trade to $26.95.
The NPAT gain of 14% and 9% lift in EBIT was offset by the $10 million loss from the BIG W segment of the company.
Analysts aren’t expecting the BIG W section to get much better with forecasts looking at losses between $80 and $120 Million for the full year.
The reversal from yesterday’s high of $27.92, sets up a “triple-top” formation dating back to May of last year.
We expect the next key support level for WOW is near $26.20.
Woolworths announced FY17 underlying NPAT of $1.42 billion, down 3.6% and the company declared a final dividend of 50 cents, which includes the one-off item from the sale of Masters. The higher dividend is not likely to recur in FY18.
The market is now looking for WOW to grow NPAT in the range of 5 – 8% and payout approximately $0.90 in full year distributions, placing the stock on 22x forward earnings and 3.1% dividend yield.
We feel WOW is now fully valued and holding the stock can only be justified when an at-the-money covered call is overlaid to boost the annualised cash flow to 10 – 12%.