Coles Group Ltd (ASX: COL) shares could offer big returns over the next 12 months.
That's that view of analysts at Citi, which are predicting double-digit gains and an attractive fully franked dividend yield.
What is the broker saying about Coles shares?
According to the note, the broker has responded to Coles' recent first-quarter update by retaining its buy rating and $17.50 price target on its shares.
Based on the current Coles share price of $15.42, this implies a potential upside of 13.5% over the next 12 months for investors.
In addition, the broker expects the supermarket giant to pay a 64 cents per share fully franked dividend in FY 2024. This represents a 4.15% dividend yield, which stretches the total potential return to almost 18%.
Citi was pleased with Coles' quarterly update and even more pleased to see the company tacking rising levels of theft from its stores.
It believes the action taken on 30% of its store network will address 70% of its total theft exposure. This is expected to give its margins a boost in the second half and into FY 2025. The broker explains:
Accelerated technology rollout should meaningfully lower theft rate in 2H24 We expect the drag from theft on gross margin will begin to materially reverse in 2H24. Coles is rolling out technology to combat theft in ~30% of the store portfolio. Our analysis of retail theft data suggests that this should address ~70% of its theft exposure given that it will be rolled out to the most impacted stores initially. We forecast a 40 bps recovery in the supermarkets GP margin in 2H24e given these measures. We retain our Buy rating and $17.50 target price.
