The Coles Group Ltd (ASX: COL) share price was on form on Wednesday and pushed higher following its third quarter update.
The supermarket giant's shares rose 1.5% to $15.85.
Is the Coles share price in the buy zone?
According to a note out of Goldman Sachs, its analysts remain positive on Coles despite its third quarter update falling short of its expectations.
The broker has retained its buy rating and a trimmed its price target slightly to $20.50. Based on the latest Coles share price, this represents potential upside of 29%.
Goldman is also forecasting dividend yields of 3.9% and 4.2% over the next couple of years. This stretches the total potential return to approximately 33% over the next 12 months.
What did Goldman say?
Goldman said: "Coles Group reported 3Q21 sales at A$8.8bn, -3.1% vs. GSe and -2.0% yoy. Supermarket comparable growth was disappointing at -6.4%, implying a 2 year CAGR of +2.9%. However, the update also provided a positive outlook on both near-term trends and longer-term supply chain efficiency."
It is partly because of the company's supply chain plans that the broker is so positive on Coles.
Goldman continued: "Operationally, management noted that the Smarter Selling program was expected to deliver savings in excess of A$250mn (in line with prior guidance) and that construction had commenced on the NSW Witron DC [distribution centre]. Further updates on this regard and eCommerce strategies are expected to be provided during the Strategy Day on 9th of June."
"Overall, the 3Q21 update was a disappointment vs. GSe, in a volatile period; however, with both Ocado CFC's and now both Witron DC's under construction the longer-term thesis is coming into focus for COL. We revise NPAT forecasts by -0.9% and -1.2% respectively over FY21 and FY22. Our revised Target Price on COL is at A$20.50, and we maintain our Buy rating on COL," it concluded.
