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What to expect from the Coles Q1 update this week

Coles share price
Source: Coles

On Wednesday all eyes will be on the Coles Group Ltd (ASX: COL) share price when the supermarket giant hands in its highly anticipated first quarter update.

Ahead of the update, I thought I would take a look to see what was expected from Coles.

What is expected from Coles in the first quarter?

According to a note out of Goldman Sachs, its analysts are expecting Coles to deliver a 7% increase in comparable supermarket sales during the first quarter.

This is expected to result in supermarket sales of $8,263 million. It expects this to be driven partly by the Little Treehouse promotion but largely by the stronger demand environment.

The company’s Liquor business is expected to have performed very strongly during the quarter. Goldman is forecasting comparable store sales growth of 10% for the quarter, leading to total Liquor sales of $804 million.

Finally, the broker has pencilled in first quarter Convenience sales of $298 million, up 12.9% on the prior corresponding period.

Overall, will mean a 7.7% increase in total first quarter sales to $9,365 million.

What else should you look out for?

Goldman Sachs believes Coles has been busy opening new stores during the three months.

It is expecting the company to report 9 net new supermarkets and 15 liquor stores to have been opened during the quarter.

And while it is unlikely that management will provide guidance for the remainder of the year, Goldman revealed that it has lifted its full year forecasts for FY 2021.

It now expects revenue of $38,663.9 million and earnings before interest, tax, depreciation and amortisation (EBITDA) of $3,398.3 million. This represents year on year growth of 3.4% and 4.4%, respectively.

Should you invest?

Based on Goldman Sachs’ estimates, Coles shares are currently changing hands for just under 29x FY 2021 earnings.

While this isn’t cheap, I still think it is decent value for a company with such positive long term growth potential, defensive qualities, and a generous dividend yield.

Incidentally, Goldman has a buy rating and $20.40 price target on the company’s shares.

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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 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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