Is the Coles (ASX:COL) share price a buy for 2021?

The Coles Group Ltd (ASX:COL) share price has been on fire in 2020. Can it go even higher in 2021?

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Coles share price

Source: Coles

The Coles Group Ltd (ASX: COL) share price has been a very strong performer in 2020.

Since the start of the year, the supermarket giant’s shares have risen an impressive 22%.

Is it too late to buy Coles shares?

Although the Coles share price has been on fire this year, analysts at Goldman Sachs believe they can still go higher from here.

This morning the broker retained its buy rating and $20.50 price target on Coles’ shares following the company’s appearance at its Black Friday Investor Series event.

COVID-19 trading.

At the event, Coles’ Chief Financial Officer, Leah Weckert, presented and spoke positively about the company’s performance and prospects.

In respect to COVID-19 trading, Goldman Sachs noted: “Sales remain elevated due to work from home, but the concept of new normal is taking hold. Management expects the work from home tailwind to be a longer term impact for the industry. The group has not observed any notable shift in consumers towards value purchases yet.”

Strong Christmas period expected.

The broker also revealed that Coles is positive on its prospects during Christmas and is expecting stronger than normal demand.

It explained: “Expecting demand to be higher than normal, but will not be very different from the peak of panic buying period, therefore expect to be better prepared for this heightened level of activity. Categories like entertainment have been elevated for some time but these have a short turnaround time making it easier to deal with demand fluctuations. Believe that consumers are looking to spoil themselves a bit into Christmas and will be watching this from a premiumization perspective.”

Strategy update.

Coles also provided an update on its refreshed strategy and particularly its Smarter Selling pillar. Pleasingly, for shareholders, the company is delivering ahead of expectations on this.

Goldman commented: “18 months into the strategy, management sees progress ahead of initial expectations, with EBIT growth being realised sooner than expected. Maintains a long term focus and not distracted by short term trends.”

Online improvements.

Another key takeaway for Goldman Sachs was an update on the progress Coles is making with its online business.

It explained: “Penetration rates are different in each state with Victoria at 9% for example, and WA not seeing much of a shift. Management does not expect much of a change in online penetration into Christmas unless there is another wave of government restrictions due to COVID-19.”

“The group is Investing in online where required, but is being judicious in its application due to risks around regret capex. An update on online is expected from management during the February result. Have improved the online checkout process to be 6 times faster and working on broadening the online range. Online capacity was doubled through COVID without much capex investment,” the broker added.

Buy rating maintained.

All in all, Goldman appears happy with what it heard at the event and has held firm with its buy rating and $20.50 price target.

Based on the latest Coles share price, this price target implies potential upside of 12% over the next 12 months, excluding dividends.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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