The Coles Group Ltd (ASX: COL) share price has taken a bit of a tumble this week.
Since the end of last week, the supermarket giant's shares have lost 9% of their value.
This has been caused by a lukewarm response to the company's full year results by investors.
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Is the Coles share price now in the buy zone?
One leading broker that is urging investors to take advantage of the Coles share price pullback is Morgans.
According to the note, the broker has retained its add rating with a slightly trimmed price target of $20.00.
Based on the current Coles share price of $17.65, this implies potential upside of over 13% for investors over the next 12 months.
In addition, the broker is forecasting a fully franked 65 cents per share dividend in FY 2023. This equates to a 3.7% yield, which stretches the total potential return to 17%.
What did the broker say?
Morgans notes that Coles' "FY22 result was slightly above expectations." It was also pleased to see better than expected supermarkets and liquor earnings, market share gains as local shopping unwound, good progress with its Smarter Selling initiatives. Morgans highlights that the latter is on course to reach cumulative benefits of $1 billion by the end of FY 2023.
A couple of disappointments, though, were that its "Capex for Witron and Ocado transformation projects have increased vs previous guidance" and its "EBIT margin fell 20bp to 4.7% due to cost inflation and investments."
Nevertheless, the broker remains positive on the Coles share price due to its attractive valuation, good yield, and defensive qualities.
Morgans concludes:
Trading on 22.6x FY23F PE and 3.6% yield we continue to see COL as offering good value with the company possessing defensive characteristics that should hold up relatively well in a weaker economic environment.
