Woolworths' Recovery Rally Runs Into a Valuation Debate

A genuine sales turnaround under new leadership drove a re-rating, but fund managers now disagree on how much further it can run.

30 Sep 2026 · 3 min read

Woolworths staged a strong operational recovery through the turn of 2026, regaining sales leadership from rival Coles after a rough chief executive transition, and its shares re-rated from around $27 to near $40. By June, several of the fund managers who backed that turnaround early were taking profits, arguing the valuation now fully reflects the recovery rather than offering more room to run.

A CEO transition turnaround takes hold

Wilson Asset Management described a high-quality interim result in February, with strong sales growth carrying into early 2026 and evidence the company had regained its sales leadership, building on recovery signs first evident in October 2025. Perennial Partners said Woolworths rallied 16.4 percent that month after an earnings result showing improved momentum following a period of market share loss to Coles, calling it a high-quality, sector-leading business, though the fund took profits and reduced its holding the same month. Ten Cap ran a pair trade through the period, buying more Woolworths and selling some Coles on the view that Woolworths' earnings momentum was improving faster, a trade that delivered double-digit returns on results day for both stocks. Ausbil Investment Management agreed Woolworths has probably the best retailer in the country and a high-quality management team, but felt earnings risks warranted a hold rather than a buy even after the pullback that preceded the rally, while PM Capital reduced its exposure, still liking the business but no longer willing to hold such a large position after the valuation increase.

By June, even backers of the turnaround are selling

ClearBridge Investments moved to a hold, recalling that around twelve months earlier there had been a genuine valuation opportunity amid negativity over the CEO transition and lost momentum to Coles, before new leadership refocused the business, improved sales execution and delivered a much better Christmas trading period, leading to a re-rating that it now considers has left the stock roughly fairly valued rather than cheap.

Retailers is all about detail. They worked through those and had a much better Christmas, had a re-rate, and are probably back to a level where they're fine on valuation.

— ClearBridge Investments, Article, June 2026

Yarra Capital Management turned outright sellers, noting the stock is up around 20 percent year over year, back to levels last seen during the pandemic boom, trading at about 27 times forward earnings against a long-run average closer to 22 times. While like-for-like sales are currently running a solid 4 to 5 percent, Yarra believes the best days are behind the company as inflation eases and the eating-at-home trend that boosted supermarket sales fades, with competition in categories like dry grocery an ongoing concern. Ten Cap made a similar point about the stock's defensive premium, arguing that defensiveness is now fully reflected in the valuation, with margin, not sales, the real issue given value-conscious shoppers, intense competition and continuing cost inflation across wages, energy, fuel and supply chains that will require ongoing investment in price, loyalty and convenience to defend market share.

Woolworths has benefited from being seen as a safe defensive, but I think that defensiveness is now fully reflected in the valuation.

— Ten Cap, Article, June 2026

Not everyone is selling

Alliance Bernstein took the opposite view in June, initiating a new position given what it considers an attractive valuation and a stable earnings profile, even as other managers were trimming. PM Capital, holding Woolworths corporate bonds rather than equity, took profit on its euro-denominated position in July after generating an approximate 8 percent return over the year, rotating into a shorter-dated Australian dollar Woolworths bond at a nearly identical yield to reduce risk while maintaining income. Perennial Partners locked in profits and reduced its equity holding, noting Woolworths had materially outperformed Coles and now trades at a large valuation premium to its rival.

What fund managers say they are watching next is whether like-for-like sales growth holds near current levels as inflation eases and the eating-at-home trend normalises, how margins hold up against ongoing cost inflation and the investment needed to defend market share, and whether Woolworths' valuation premium to Coles proves durable or narrows as some early backers of the turnaround have already concluded it should.