Wondering whether to buy Coles Group Ltd (ASX: COL) or Woolworths Group Ltd (ASX: WOW) shares?
If you are, it could be worth hearing what one leading broker is saying about the two supermarket behemoths.
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Coles or Woolworths shares?
According to a note out of Goldman Sachs this morning, its analysts think that investors should be choosing Woolworths ahead of Coles.
The broker has reiterated its conviction buy rating and $42 price target on Woolie's shares. Based on the current Woolworths share price of $37.63, this implies a potential upside of 11.5% for investors over the next 12 months.
Goldman is also expecting a fully franked $1.12 per share dividend in FY 2024, which equates to a 3% dividend yield at current levels.
As for Coles, the broker has held firm with its sell rating and $14.50 price target on its shares. This suggests a potential downside of 8% over the next 12 months. This reduces to approximately 4% downside if you include Goldman's estimate for a 59 cents per share fully franked dividend from Coles in FY 2024.
Why Woolworths?
Goldman prefers Woolworths shares because it believes the company is positioned to win market share from its rivals. It explains:
We believe that F&B grocery retail in FY24 will begin to moderate with mid-single digit industry growth with slowing inflation and volumes revert to positive. We continue to prefer WOW (Buy, CL) over COL (Sell) as early investments by WOW on the store network, technology and automation as well as digital and omni-channel capabilities begin to pay-off.
We believe FY24/25 will be a period for WOW to take market share, while still expanding EBIT margins as COL is focused on scaling its Witron and Ocado projects and, in our view, does not have the margin strength to fight on irrational pricing. Its delayed Ocado opening in VIC should also enable WOW to further gain market share. We see that WOW is building towards an eco-system model with multiple levers of growth and monetisation similar to WMT and expect that the expanding quality/growth gap vs COL will justify an expanded valuation premium.
