The Coles Group Ltd (ASX: COL) share price has been among the worst performers on the S&P/ASX 200 Index (ASX: XJO) on Thursday.
The supermarket operator's shares were down as much as 5% to $16.14 at one stage today.
The Coles share price has recovered slightly since then but remains down 4% to $16.38 at the time of writing.
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Why is the Coles share price sinking today?
The Coles share price has come under pressure on Thursday following the release of its strategy day update this morning.
While there were a number of positives in the update, such as its progress with cost cutting and sales density, investors appear to have reacted negatively to comments relating to its capital expenditure and depreciation.
Coles revealed that it is expecting its capital expenditure to increase to $1.4 billion in FY 2021, whereas its depreciation is forecast to rise to ~$1.7 billion.
What was the reaction?
A note out of Goldman Sachs reveals that its analysts have been running the ruler over today's update.
The broker commented: "Supply chain and online upgrades have the potential to materially impact long term profitability for COL and materially change the competitive landscape. However, the medium-term costs from a capex, overlapping costs and D&A perspective are higher than previously expected, potentially taking some of the shine off the significant structural progress being made by COL."
Is this a buying opportunity?
While Goldman Sachs may yet make revisions to its recommendation, for now the broker rates the Coles share price as a buy.
It has a buy rating and $20.50 price target on the company's shares. This implies potential upside of 25% over the next 12 months excluding dividends. And if you include dividends, this potential return stretches to a sizeable 29% over the same period.
