Why this analyst sees 15% upside for the Coles (ASX:COL) share price

This supermarket giant's shares have been named as a buy…

The Coles Group Ltd (ASX: COL) share price has been out of form in 2021.

Since the start of the year, the supermarket giant's shares have fallen almost 7%.

A happy, smiling woman rides on the back of a trolley down the aisles of a supermarket.

Image source: Getty Images

Is the Coles share price in the buy zone?

One leading broker sees the weakness in the Coles share price this year as a buying opportunity.

According to a recent note out of Morgans, its analysts have an add rating and $19.80 price target on the company's shares.

Based on the current Coles share price of $17.28, this implies potential upside of almost 15% over the next 12 months before dividends.

But the returns don't stop there. Morgans is forecasting a fully franked dividend of 61 cents per share in FY 2022. If you include this, the potential return on offer stretches to over 18%.

What did the broker say?

Morgans is a fan of Coles due to its strong market position and the belief that consumers will continue to stay at home due to COVID-19. The broker expects this to support solid sales across its 800+ store supermarket network.

And while rival Woolworths Group Ltd (ASX: WOW) will benefit from the same trends, the broker notes that its shares trade on significantly higher multiples. As a result, it sees far more value in the Coles share price at present.

Morgans commented: "While vaccines are being rolled out across Australia, we think people will continue to spend more time at home due to the ongoing risk of COVID flare-ups with the working-from-home trend also likely to stay for some time (eg, Sydney and Melbourne remain in lockdown indefinitely)."

"This will be beneficial for the major supermarket operators. We continue to see COL (~24x FY22F PE and ~3.5% yield) as offering better value than WOW (32x FY22F PE and 2.5% yield)," it added.

Overall, it feels this makes the Coles share price a good option right now.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Two work colleagues looking at a laptop and discussing something.
Broker Notes

Buy, hold, sell: Aristocrat, Liontown, and Navigator Global shares

Let's see what Morgans is saying about these shares.

Read more »

Man using his device in an airport.
Broker Notes

This ASX 200 share is tipped to return over 50%

Bell Potter sees potential for this stock to deliver very big returns.

Read more »

Woman holding her glasses and looking at her laptop.
Broker Notes

Buy, hold, sell: Deep Yellow, SGH, Telstra shares

We review three fresh buy, hold, and sell calls from expert market analysts. 

Read more »

View of a row of blue and black server racks in a data centre.
Broker Notes

How high does Macquarie think Megaport shares will go?

Shares in this technology company are looking cheap, the broker says.

Read more »

A happy group of workers around a table raise their arms in the air as though celebrating a work achievement. One woman is on her feet with her arm raised in the air in a fist-pumping action.
Broker Notes

Brokers tip up to 67% for these 3 ASX shares

All three are rated a strong buy

Read more »

A mining worker wearing a white hardhat and a high vis vest stands on a platform overlooking a huge mine, thinking about what comes next.
Broker Notes

7 ASX mining shares with 11% to 158% upside ahead: experts

Brokers have updated their ratings and price targets on BHP, Mineral Resources, and others. 

Read more »

Two male ASX 200 analysts stand in an office looking at various computer screens showing share prices.
Broker Notes

6 ASX shares upgraded by experts amid a weak market 

Brokers have increased their ratings on Capricorn Metals, REA Group, and others this week. 

Read more »

woman on phone
Broker Notes

With $2.4 billion in FY26 profits, are Telstra shares a good buy today?

A leading expert delivers his outlook for Telstra shares.

Read more »