Is the Coles share price good value after the supermarket giant's Q3 update?

What are brokers saying about Coles after its update?

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The Coles Group Ltd (ASX: COL) share price ended last week in a disappointing fashion.

In response to the supermarket giant's quarterly update, the company's shares fell 1.5% on Friday to end the week at $18.20.

Where next for the Coles share price?

Opinion is divided on where the Coles share price is heading following the company's update.

For example, the team at Goldman Sachs was reasonably pleased with Coles performance. However, not enough to become more positive on its shares due to the higher than normal multiples they trade on. The broker has reiterated its sell rating and $15.80 price target on Coles shares. It commented:

COL reported 3Q23 sales largely in-line with total continuing group sales of A$9.4B, comprised of A$8.6B supermarket (+1.4% vs GSe) and Liquor A$801mn (+0.4% vs GSe).

Our valuation and TP remains unchanged at A$15.80/sh, implying -11% TSR. COL is trading at 12mth fwd P/E of 24x vs TP implied ~21x. Our 24/25e NPAT remains 9%/8% below consensus, largely due to lower margins. Reiterate Sell.

There are plenty of bulls

Conversely, over at Morgans, its analysts remain bullish on the supermarket giant and see value in its shares. They responded by retaining their add rating and lifting their price target to $19.85. Morgans commented:

Coles Group's 3Q23 sales trading update overall was above our expectations. 3Q22 LFL sales growth (yoy): Supermarkets +6.5% (vs MorgansF +3.0%) and Liquor +1.5% (vs MorgansF +2.5%). Management said Supermarkets sales growth has continued into 4Q23 with volumes remaining modestly positive, while supplier input cost inflation is expected to continue to moderate.

It is a similar story for Citi, which has reiterated its buy rating and $20.20 price target.

Citi notes that Coles delivered sales growth a touch ahead of its forecasts. It believes that the company's private label offering was a key driver of this outperformance and appears to believe the trend can continue.

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 has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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