The Coles Group Ltd (ASX: COL) share price has been a strong performer this year.
Since the start of the year the supermarket operator's shares have gained 8%. This compares to a 21% decline by the S&P/ASX 200 Index (ASX: XJO).
Is it too late to invest?
I don't believe it is too late to buy Coles shares and see a lot of value in them for long-term focused investors. Especially in comparison to rival Woolworths Group Ltd (ASX: WOW).
At present, I estimate that Coles' shares are changing hands at 20x estimated FY 2021 earnings and offer a forward 3.9% fully franked dividend yield. I think this is good value given its defensive qualities, strong market position, and solid long term growth potential.
Whereas I estimate that Woolies' shares are trading at 24x estimated FY 2021 earnings and offer a forward fully franked 3% dividend yield. I think this is about right for Woolworths.
However, it might be prudent to not rush in and buy Coles shares today. This is because on Wednesday the company is scheduled to release its third quarter update.
Expectations certainly are high for this update, so if it fails to deliver on them, its shares could come under a spot of pressure.
What is the market expecting from Coles?
The market is expecting Coles to report very strong sales growth in the third quarter thanks largely to the coronavirus-induced panic buying.
According to a note out of Goldman Sachs, it expects Coles to deliver a 12% increase in comparable store sales growth in its Food division and a 6% lift in the Liquor division. The key drivers of this are expected to be stockpiling by consumers, more eating at home, and a 1.2% lift in food inflation.
Goldman has forecast this to lead to third quarter group sales growth of 12.1% to $9,163 million. This comprises Food sales of $8,148.5 million, Liquor sales of $758.1 million, and Convenience sales of $256.8 million.
It may also be worth looking out for any guidance for the full year. Goldman Sachs has pencilled sales of $37,192 million, net profit after tax of $988 million, and a dividend of 62 cents per share for FY 2020.
