The Coles Group Ltd (ASX: COL) share price has been a positive performer over the last 12 months.
Since this time last year, the supermarket giant's shares are up 14%.
Can the Coles share price keep rising?
Unfortunately, one leading broker believes the Coles share price has peaked for the time being.
According to a note out of Goldman Sachs, its analysts have initiated coverage on the company's shares with a neutral rating and a $16.40 price target.
Based on the current Coles share price of $17.93, this implies potential downside of approximately 8.5% for investors over the next 12 months.
What did the broker say?
Goldman has been looking at the food and beverage (F&B) sector and given its verdict on the major players.
While it rates Endeavour Group Ltd (ASX: EDV) and Woolworths Group Ltd (ASX: WOW) as buys (here and here), it can only muster up a neutral rating for Coles due to its lagging digital and data capabilities and valuation.
Goldman said:
Coles Group is the 2nd largest supermarket in Australia. We view Coles as being less advanced in digital and data capabilities than Woolworths. In the short term, we expect Coles to be more defensive in an inflationary environment and see it as more protected from global supply chain disruptions given higher local sourcing for fresh. We initiate on Coles group with a Neutral rating.
In respect to its data capabilities, the broker fears that Coles' lower quality consumer data assets could result in further market share gap.
It explained:
COL's primary sources of consumer data are its own sales transaction records and Flybuys loyalty program. Contrasting with WOW's Everyday Rewards, Flybuys is ~8mn members vs Everyday Rewards [EDR] ~13mn members and while EDR is wholly owned by WOW, Flybuys is an independent JV, 50/50 owned with Wesfarmers. This implies that WOW is able to access a larger pool of consumer insights in EDR more freely, whereas the terms of COL's access would need to be negotiated with Flybuys and Wesfarmers – i.e. they potentially may have less and more costly access.
The direct relationship with consumers also lies with Flybuys and not COL. We acknowledge that Flybuys does have a broader coverage of businesses including most recently Bunnings and Officeworks but these are shared on a grouped, attribution basis only (i.e. 3rd party data) where the exact impact on business remains to be proven. Net net, we expect an opening of market share leadership between WOW and COL, which we forecast to expand from 8.8pts in 2022 to 10.3pts by 2024.
All in all, the broker believes investors should be buying Woolworths shares and waiting for a better entry point with the Coles share price.
