On Tuesday the Coles Group Ltd (ASX: COL) share price climbed 0.5% higher to $16.67.
This latest gain means the supermarket giant's shares have now risen a sizeable 11% since the start of the year.
This means Coles' shares are vastly outperforming the S&P/ASX 200 Index (ASX: XJO), which is down 11% over the same period.
Is it too late to buy Coles' shares?
I don't believe it is too late to invest in Coles. Although its shares have been strong performers this year, I believe they are still good value. Especially in comparison to its arch rival Woolworths Group Ltd (ASX: WOW).
At present, I estimate that the Coles share price is trading at a little over 21x FY 2021 earnings, whereas Woolies is trading closer to 26x FY 2021 earnings.
Another reason to be positive on Coles is its dividend. I expect Coles to provide investors with a fully franked 3.9% dividend yield next year. For Woolworths, I'm expecting a fully franked 2.9% dividend yield in FY 2021.
I'm not the only one that is positive on Coles. After looking through recent updates by Woolworths and Metcash Limited (ASX: MTS), this morning analysts at Goldman Sachs reiterated their conviction buy rating and $18.60 price target on its shares.
This price target implies potential upside of 11.6% for its shares over the next 12 months or 15.5% including dividends.
What did Goldman Sachs say?
Goldman appears confident that Coles will finish FY 2020 strongly and has revised its sales forecasts higher. And while it does have concerns over margin pressures, it feels Coles is better positioned to limit the damage.
The broker commented: "While the sales trends remain strong across the industry, margins have underwhelmed but the outlook for margins over the remainder of CY20 look supportive. We revise 4Q20 LFL growth for the Food division to +8.5% and for the Liquor division to +8%, reflecting the stronger than expected industry growth trends."
"Over 2H20, we anticipate COL's cost out program and earlier timing of EBA implementation will limit the downside to margins compared to that anticipated by WOW's update. We have revised 2H20 Food EBIT margins from 4.2% to 4.0% (+10bps on pcp). Overall, FY20 Food EBIT has been reduced by -1.6% and Group EBIT by -1.5%. We revise pre-AASB16 FY20 EPS to A$0.71, -1.5%," it concluded.
