Coles Group Ltd (ASX: COL) shares have been in form of late and are trading approximately 14% higher over the last three months.
They are currently trading at $18.27 as of market close on Wednesday.
Whilst the broad market incurred a large spasm last week, with many ASX 200 shares selling off sharply, Coles shares remained reasonably steady.
After showing this momentum, is Coles a tactical buy at these levels? Let's see what the experts think.
Image source: Getty Images
Analyst views on Coles shares
Coles has caught the attention of both bullish and bearish analysts. For instance, Goldman Sachs believes that Coles' shares are fully valued at current levels.
The broker has a neutral rating on the stock with a price target of $16.70. Goldman highlights that Coles might face challenges in delivering growth compared to its competitor, Woolworths Group Ltd (ASX: WOW), in the coming years.
It says Coles is "trading below its long-term 12-month forward [price-earnings-ratio] P/E, but with the double running costs associated with its Witron/Ocado facilities, we believe this is fair value."
On the other hand, Ord Minnett is more cautious. The broker suggests that the recent surge in Coles shares might have pushed them into overvalued territory.
According to my colleague James, it assigned a "lighten" rating and a price target of $15 on the share.
Contrasting with the bearish view, Bell Potter and Morgans are bullish on Coles shares. Both brokers have buy ratings on the stock, with price targets of $19.00 and $18.95, respectively.
Morgans sees the current scrutiny on the supermarket sector as a short-term sentiment issue, which could create a good buying opportunity.
The broker expects Coles' core supermarkets division, which makes up 92% of its earnings, to thrive due to factors like "greater in-home consumption due to cost-of-living pressures".
Bell Potter echoes this sentiment. It adds that population growth, currently driving supermarket spending, could help the company maintain its market position.
It reckons these factors will support the growth of Coles shares as the company works to "modernise its supply chain".
Don't forget the dividends
Another aspect that needs analysing is Coles' dividend potential. Fellow broker UBS expects the company to pay fully franked dividends of 70 cents per share in FY24.
This translates to a yield of around 3.8% at the current share price.
It then forecasts dividends of 74 cents per share for FY25, offering a yield of 4% if the broker is correct.
UBS also sets a price target of $19.50, which is nearly 7% upside from today's price.
Takeaway
Coles shares have had a strong run in 2024, but opinions are divided on whether the stock still offers value.
While some brokers suggest that the current price reflects fair value, others see the potential for further gains, particularly as the company continues to invest in its infrastructure. For income-focused investors, the solid dividend yield adds another layer of discussion.
Coles shares are up more than 2% in the past 12 months.
