Should Coles shares be on your Christmas list this year?

Are Coles shares a Christmas gift to investors, or will they prove to be lumps of coal?

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Coles Group Ltd (ASX: COL) shares have had a bit of a rough and tumble time on the ASX of late. Back in late October, the ASX 200 supermarket giant hit a new 52-week low of $14.82. Yesterday, Coles shares closed at $15.14 each, just a few percentage points off of that low.

The company has fallen significantly from its last 52-week high of $18.85 which we saw only back in June. As it stands today, the Coles share price has lost 7.5% over 2023 to date and 10.8% over the past 12 months.

But perhaps this means that Coles shares should be on your 2023 Christmas list. After all, it's probably pretty safe to say this company, the second-largest grocery and supermarket chain in the country, isn't going anywhere anytime soon.

Thus, many value investors out there might be asking themselves whether they are staring at a bargain right now. Let's discuss that proposition today.

It's actually a big day for Coles shares. Today, the company is participating in the Australian Financial Review (AFR)'s fifth annual CFO Live summit.

According to reporting in the AFR, Coles' chief financial officer Charlie Elias has discussed the company's $1 billion investment in new automated distribution centres. He reportedly told the summit the massive investment "makes sense at all times in the cycle".

Should ASX investors be encouraged by this? Perhaps even put Coles on their Christmas stock shopping lists?

Well, let's see what a prominent ASX broker reckons.

ASX broker names Coles shares as a buy

Earlier this month, my Fool colleague looked at the views of ASX broker Citi when it comes to Coles shares.

Citi is bullish on the company. It gave Coles a buy rating, alongside a 12-month share price target of $17.50. If realised, this would see Coles investors gain 15% from today's price of $15.21 a share (at the time of writing).

Citi is also forecasting Coles will pay a total of 64 cents per share in fully franked dividends over the 2024 financial year. If it does, this could boost these potential returns by another 4.2% in yield.

But why this unbridled optimism over Coles' immediate future? The broker pointed to the company's recent first-quarter update for FY2024 as part of its thesis. As we covered at the time, this update saw Coles report a 4.7% rise in supermarket sales over the quarter compared to the same quarter last year. Liquor sales also rose by 1.8%.

Further, Citi is also buoyed by Coles' commitment to clamp down on store theft:

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.

Thus, Citi is undoubtedly an ASX expert who reckons Coles shares are a prime Christmas pick this year. But let's wait and see if Coles can spend the next 12 months heading back up to $17.50 a share.

Motley Fool contributor Sebastian Bowen 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 has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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