Why this broker sees 17% upside for the Coles (ASX:COL) share price

This supermarket giant could be good value…

| More on:
Two couples race each other in supermarket trollies, having a great time, smiling and laughing.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you're looking for blue chip shares to buy, then the current Coles Group Ltd (ASX: COL) share price could make this supermarket giant one to consider right now.

Is the Coles share price good value?

A recent note out of Morgans reveals that its analysts believe the Coles share price is in the buy zone at the current level.

According to the note, the broker currently has an add rating and $19.80 price target on the company's shares.

Based on the current Coles share price of $16.94, this implies potential upside of 17% over the next 12 months before dividends.

In respect to dividends, Morgans has pencilled in a fully franked 61 cents per share dividend in FY 2022. This represents a 3.6% dividend yield, which increases the total potential return on offer to over 20%.

Why is Morgans bullish?

Morgans was pleased with the company's performance in FY 2021, noting that its earnings came in ahead of its forecasts.

It said: "FY21 EBIT was up 6% to A$1,873m (2% above Morgans and in line with Bloomberg consensus) and underlying NPAT rose 3% to A$1,005m (2% above Morgans and in line with Bloomberg consensus)."

Morgans was pleased with this and also the company' healthy balance sheet. The broker believes the latter provides Coles with plenty of scope "to pursue its medium-term investment plans (data, eCommerce, technology, automation, range, stores and sustainability) while maintaining the group's target dividend payout ratio of 80-90%."

Overall, its analysts believe the Coles share price is trading at a fair level and offers an attractive yield.

Morgans concluded: "COL is a defensive business with strong market positions and a healthy balance sheet. Trading on 24.6x FY22F PE and 3.3% yield we continue to see the stock as offering good value and maintain our Add rating."

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Broker Notes

How this undervalued ASX All Ords share could rocket 80% in a year

A leading fund manager expects a big turnaround for this beaten-down ASX All Ords stock.

Read more »

A car dealer stands amid a selection of cars parked in a showroom.
Broker Notes

Up 77% in a year, guess how much more upside Macquarie tips for Eagers Automotive shares

Macquarie released its latest analysis on Eagers Automotive fast rising shares this morning.

Read more »

Frustrated and shocked business woman reading bad news online from phone.
Broker Notes

Guess which ASX 200 share Goldman Sachs just downgraded

The broker is calling time on this stock's rally.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Broker Notes

These ASX 200 shares can rise 20% to 50%

Let's see which shares are being tipped to rocket from current levels.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Broker Notes

Why Guzman Y Gomez shares are a sell

Goldman Sachs has given its verdict on the burrito seller.

Read more »

A man pulls a shocked expression with mouth wide open as he holds up his laptop.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Broker Notes

Macquarie sees more upside in Telstra shares – What are they worth?

Telstra shares are up 34% over the past year, and Macquarie thinks there's more to come.

Read more »

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements
Broker Notes

What is Morgans saying about TechnologyOne, Wesfarmers, and Xero shares?

Let's see what the broker is saying about these shares.

Read more »