Woolworths Surges 3% on JPMorgan Upgrade to Overweight – Is It Time to Buy?

Woolworths Group (ASX: WOW) rallied around 3% today, trading near $29.20-$29.30, after JPMorgan upgraded the stock from Neutral to Overweight with a price target of $31.00 (up from $29.50). This marks JPMorgan’s first Overweight rating for the Australian retailer in over three years, as the firm recognises Woolworths’ narrowing like-for-like sales growth gap compared to competitor Coles.
After a brutal 15% sell-off in August following weak FY25 results, this upgrade signals that one of Wall Street’s most influential banks believes the worst may be over. The key question: Is the turnaround real, or too early to jump in?

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Why JPMorgan Turned Bullish on Woolworths

JPMorgan attributes the improved performance to Woolworths’ strategic shift towards impulse categories and increased promotional activity centred around loyalty programmes, online offerings, and high-low promotions. The broker believes these initiatives have delivered what it calls a “sugar hit” to second-quarter sales.
Importantly, these changes are translating into measurable results. Woolworths reported total FY26 Q1 sales increased by 2.7% to $18.5 billion, with Woolworths Food Retail sales increasing 3.8% excluding tobacco. E-commerce remains a standout, with online sales surging 12.9% in the quarter.
JPMorgan has raised its earnings per share forecasts for Woolworths by 2.2% for fiscal year 2026, 2.3% for fiscal year 2027, and 2.8% for fiscal year 2028. This shows people believe the recovery will last, not just be a quick rebound.

The Sales Gap with Coles is Narrowing

One of the most critical developments for Woolworths investors is the closing performance gap with arch-rival Coles. After FY25, Coles’ supermarket sales rose 4.9% in the first eight weeks of FY26, while Woolworths’ rose just 2.1% (or 4% excluding tobacco). That gap now appears to be narrowing as Woolworths’ promotional strategies gain traction.
While the firm acknowledges the strategic pivot will likely pressure gross margins, it notes investors currently prioritise sales momentum over margins during this turnaround phase. In other words, the market is willing to accept some margin compression if it means Woolworths stops losing ground to Coles.

The Investor’s Takeaway for Woolworths

With sales momentum building and a major broker turning bullish, the investment case is shifting. But valuation remains a key consideration.
At current levels around $29.20, Woolworths trades at a market cap of approximately $35 billion with a dividend yield near 3%. Using a trailing price/earnings ratio of roughly 36x, investors are clearly paying a premium for Woolworths’ perceived safety and dominant market position. That’s above its 13-year median P/E of around 20, suggesting the market is already pricing in a successful turnaround. The stock sits roughly 13% below its 52-week high of $33.76.

Bull case:

– JPMorgan’s $31.00 price target implies around 6% upside from current levels
– Defensive earnings from essential retail provide downside protection
– E-commerce growth of 12.9% shows digital strategy is working
– If sales momentum continues, the stock could re-rate higher

Bear case:

– Woolworths still faces potential additional liabilities of $320-530 million post-tax related to historical underpayment proceedings
– Big W continues to drag on group profits
– Tobacco sales are declining sharply (down over 50%)
– Premium valuation leaves little room for disappointment

What to watch: Woolworths will release its 1H FY26 results and announce its interim dividend on 25 February 2026. This will be the critical test of whether promotional momentum is translating into sustainable earnings improvement.

Our view: The JPMorgan upgrade is a meaningful signal that sentiment is shifting, but Woolworths remains in the early stages of its turnaround. For patient investors comfortable with near-term uncertainty, current levels offer a reasonable entry point with improving momentum. More cautious investors may prefer to wait for the February results to confirm that sales improvements are translating into margin stability before building a position.