The Coles Group Ltd (ASX: COL) share price is pushing higher on Friday afternoon.
At the time of writing, the supermarket giant’s shares are up 1% to $16.45.
Today’s gain means the Coles share price has reduced its year to date decline to 11%.
Is the Coles share price in the buy zone?
According to a note out of Goldman Sachs this morning, the broker believes the Coles share price is good value at the current level.
In response to Coles’ strategy update this week, the broker has retained its buy rating but trimmed its price target by 5% to $19.40. This is a touch higher than its record high of $19.26.
Based on the current Coles share price, this implies potential upside of 18% over the next 12 months. And with Goldman forecasting dividends per share of 62 cents in FY 2021 and 67 cents in FY 2022, this potential return stretches to ~22% if you include dividends.
What was Goldman’s verdict on Coles’ strategy day?
Goldman has been looking through its presentation and has given its verdict on the short, medium, and long term.
In respect to the short term, the broker expects Coles to benefit from a reversal in shopping trends.
It said: “In the short term, management noted a reversal of the shopping local trend, resulting in market share recovery for the supermarkets, and e-commerce penetration improving to 5.9% in QTD 4Q21 flagging strong growth, positive signs in terms of successful progress in execution.”
Whereas things aren’t quite as positive for the medium term.
Goldman commented: “The medium term outlook for industry is less rosy, impacted by macro headwinds from a slower population growth expectation. For COL specifically, high capital expenditure from technology investments (alongside the previously announced supply chain improvements and store renewals) are expected to result in a capex outlook which is ahead of our prior forecasts.”
Nevertheless, the broker believes the investments the company is making will be worth it in the long run.
It explained: “The longer term outlook remains intact, with Coles remaining well poised to benefit from reinvestment of the smarter selling savings to drive topline growth ahead of market, the launch of the Ocado offering and strong efficiency gains from supply chain investments are expected to come through from FY24.“
In light of this, Goldman believes Coles “remains on track to achieve the longer term deliverables with focus on sustainable growth” and has retained its buy rating.