The Coles Group Ltd (ASX: COL) share price is back on form on Thursday.
In afternoon trade, the supermarket operator's shares are up almost 1% to $16.30.
Why is the Coles share price rising?
Investors have been buying the company's shares today after brokers responded reasonably positively to yesterday's quarterly update.
One of those brokers was Morgans, which has retained its add rating with a trimmed price target of $19.50.
Based on the current Coles share price, this implies potential upside of almost 20% for investors over the next 12 months.
The broker is also forecasting a 64 cents per share fully franked dividend in FY 2023, which equates to an attractive dividend yield of 3.9%.
What did the broker say?
Overall, Morgans was pleased with Coles' first quarter update. The broker commented:
Coles Group's 1Q23 sales trading update reflected the cycling of COVID lockdowns in the pcp with growth overall that was slightly above our expectations. LFL sales growth: Supermarkets +2.1% (vs MorgansF -1.2%); Liquor -4.1% (vs MorgansF -3.5%); and Express (c-store) +9.0% (vs MorgansF +8.5%).
However, due partly to the expectation of further cost price inflation in the second quarter, Morgans has trimmed its earnings estimates ever so slightly.
We make minor adjustments to earnings forecasts with FY23F/FY24F/FY25F underlying EBIT changing by -1%/0%/0%. Our equally-blended (DCF, SOTP, PE) target price falls to $19.50 and we retain our Add rating.
Nevertheless, the broker sees plenty of value in the Coles share price at the current level. It concludes:
Trading on 20.6x FY23F PE and 4.0% yield, we continue to see COL as offering good value with the company's solid balance sheet and defensive characteristics putting it in a good position to navigate through a weaker economic environment. The unwinding of local shopping should also help further market share gains.
