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Top broker says buy Coles shares instead of Woolworths

Since dropping as low as $11.23 in the middle of March, the Coles Group Ltd (ASX: COL) share price has been one of the better performers on the S&P/ASX 200 index.

During this time the supermarket giant’s shares have risen approximately 12% to $12.57.

Is it too late to buy Coles shares?

I don’t believe it is too late to buy Coles shares and feel they would be a great long term investment option at the current price. Especially for income investors given the company’s plan to pay out between 80% and 90% of its earnings as dividends.

I’m not alone in believing that Coles shares are in the buy zone right now.

A note out of Goldman Sachs this morning reveals that its analysts have retained their buy rating and $13.30 price target on the supermarket operator’s shares.

This price target implies potential upside of 6% excluding dividends and over 10% if you include them into the equation.

According to the note, the broker believes that Coles has been a significant laggard on supply chain and this has been a key factor in its underperformance from an efficiency and profitability perspective.

However, with the company investing heavily in the supply chain, Goldman appears optimistic that this will change over the medium term.

Its analysts said: “We maintain our Buy recommendation. Coles has been delivering to its strategy script from June 2018 while also compensating for its under-investment since its demerger from Wesfarmers Ltd (ASX: WES) in November 2018. We believe that Coles is poised for greater profitability from its online strategy and supply chain investments and is also undervalued in relation to its closest peers.”

Goldman has a neutral rating on Woolworths Group Ltd (ASX: WOW) shares with a price target of $29.00. This compares to its last close price of $32.09.

The broker said: “Overall, our blended target price is A$29.00, implying downside of 10.2%. We maintain our Neutral rating on valuation grounds relative to coverage.”

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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 COLESGROUP DEF SET and Wesfarmers Limited. 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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