Why this broker sees 17% upside for the Coles (ASX:COL) share price

This supermarket giant could be good value…

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If you’re looking for blue chip shares to buy, then the current Coles Group Ltd (ASX: COL) share price could make this supermarket giant one to consider right now.

Is the Coles share price good value?

A recent note out of Morgans reveals that its analysts believe the Coles share price is in the buy zone at the current level.

According to the note, the broker currently has an add rating and $19.80 price target on the company’s shares.

Based on the current Coles share price of $16.94, this implies potential upside of 17% over the next 12 months before dividends.

In respect to dividends, Morgans has pencilled in a fully franked 61 cents per share dividend in FY 2022. This represents a 3.6% dividend yield, which increases the total potential return on offer to over 20%.

Why is Morgans bullish?

Morgans was pleased with the company’s performance in FY 2021, noting that its earnings came in ahead of its forecasts.

It said: “FY21 EBIT was up 6% to A$1,873m (2% above Morgans and in line with Bloomberg consensus) and underlying NPAT rose 3% to A$1,005m (2% above Morgans and in line with Bloomberg consensus).”

Morgans was pleased with this and also the company’ healthy balance sheet. The broker believes the latter provides Coles with plenty of scope “to pursue its medium-term investment plans (data, eCommerce, technology, automation, range, stores and sustainability) while maintaining the group’s target dividend payout ratio of 80-90%.”

Overall, its analysts believe the Coles share price is trading at a fair level and offers an attractive yield.

Morgans concluded: “COL is a defensive business with strong market positions and a healthy balance sheet. Trading on 24.6x FY22F PE and 3.3% yield we continue to see the stock as offering good value and maintain our Add rating.”

Should you invest $1,000 in Coles right now?

Before you consider Coles, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Coles wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

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.

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