How much could $5,000 invested in Coles shares be worth in a year?

Do analysts expect good returns from this supermarket giant's shares?

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Coles Group Ltd (ASX: COL) shares have delivered the goods for investors in 2024.

Since the start of the year, the supermarket giant's shares have recorded a gain of almost 17%.

And that doesn't include the dividends the company has paid out to shareholders over the period.

But those returns have been and gone now. What could happen if I invested $5,000 into Coles shares now? Could I get a good return on investment? Let's see what analysts at Bell Potter are saying.

Investing $5,000 into Coles shares

At present, the Coles share price is fetching $18.90. This means that with a $5,000 investment (and a further $8.50 for good measure), I would receive 265 units.

According to a recent note out of Bell Potter, its analysts believe those shares could rise nicely from current levels.

They have put a buy rating and $20.50 price target on them, which implies potential upside of approximately 8.5% over the next 12 months.

If this were to happen, it would give my 265 shares a market value of $5,432.50.

In addition, Bell Potter is forecasting a fully franked dividend of 68 cents per share in FY 2025. If accurate, my shares would generate dividend income of $180.20.

This brings the total return to $604.20 from a $5,000 (and $8.50) investment in Coles shares.

Why is Bell Potter bullish?

Commenting on its buy recommendation, Bell Potter said:

We see FY25e as a year of consolidation on a reported basis, however, we continue to see COL as providing an attractive earnings growth profile through to FY27e on an underlying basis driven by: (1) delivering $1Bn in cumulative savings by FY27e through Simplify & Save ($238m of which was delivered in FY24) (2) Sustained benefit of lower loss rates (+44bp margin tailwind YOY in 2H24); (3) Delivering targeted returns on a ~$1.45Bn capital investment program in ADC's and CFC's; and (4) Expansion of the store network at a pace consistent with population growth.

As for its valuation, Bell Potter explained how he came up with its price target. The broker said:

In determining our $20.50ps target price we have considered a sum of the parts and ROIC model. Major features of these approaches are: (1) Sum of the parts ($20.30ps): We have incorporated multiple of 9.0x EBITDA for Supermarkets and 8.5x EBITDA for the liquor business, modest discounts to its peers; and (2) ROIC based approach ($22.90ps): Which is predicated on a WACC of 8.0%, deriving an implied EV/EBITDA is 9.3-9.5x FY25- 26e. FY25e EBITDA & EBIT exclude $130m in effectively non-recurring costs linked to the ADC/CFC implementation costs and $35m in Fy25e provisions.

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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