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Is the Coles share price in the buy zone?

The last three weeks have been very disappointing for the Coles Group Ltd (ASX: COL) share price.

During this time the supermarket giant’s shares have fallen approximately 10%.

Why is the Coles share price down 10% in three weeks?

The catalyst for this selling was a weaker than expected half year result last month.

In its inaugural results release since the demerger from Wesfarmers Ltd (ASX: WES), Coles posted a 2.6% increase in revenue to $20.9 billion but a 5.8% decline in EBIT to $733 million.

The decline in EBIT was due largely to the underperformance of its Express segment during the half. However, weaker margins in its key Supermarket segment didn’t help matters. Although the Supermarket segment delivered a 3.6% increase in sales to $16.2 billion, segment EBIT only lifted 0.4% to $602 million.

Is this a buying opportunity?

Whilst its half year result was a touch underwhelming, I think the recent share price weakness is a buying opportunity and would suggest investors consider a position in the company this week.

I’m not alone in seeing this as a buying opportunity. A note out of Citi this morning reveals that its analysts remain bullish on the supermarket giant’s prospects.

According to the note, Citi has retained its buy rating and $13.40 price target on its shares following its decision to exit the Spirit Hotels business.

The broker believes that this decision is a good one and will allow management to focus its efforts on its key Food and Liquor businesses. It also appears happy with the price the company has commanded.

Another broker that is positive on Coles is Goldman Sachs. It has a buy rating and $13.10 price target on the company’s shares.

I agree with both brokers and think it would be a great option for investors and would choose it ahead of rivals Metcash Limited (ASX: MTS) and Woolworths Group Ltd (ASX: WOW).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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