Coles Group Ltd (ASX: COL) shares have been on fire over the past 12 months.
During this time, the supermarket giant's shares have risen by a massive 22%. This is stronger than the impressive 14.4% gain recorded by the ASX 200 index over the same period.
This has left the company's shares trading within a whisker of a record high.
Does this mean that its gains are now over or can its shares keep rising? Let's see what one leading broker is saying about the company.
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Is it too late to buy Coles shares?
According to a note out of Bell Potter, its analysts believe that the supermarket operator's shares are still good value and could even deliver strong returns for investors over the next 12 months.
This morning, the broker revealed that it has initiated coverage on the company's shares with a buy rating and $21.55 price target.
Based on its current share price of $19.19, this implies potential upside of 12.3% for investors over the next 12 months.
In addition, Bell Potter is forecasting a fully franked 3.5% dividend yield in FY 2025. This stretches the total potential return on offer with Coles shares to almost 16%.
Why is it bullish?
Bell Potter highlights that Coles has delivered solid dividend growth in recent years. The good news is that it expects this trend to continue thanks to business improvement initiatives. It explains:
Since FY20 COL has generated CAGR earnings growth of 3.7% p.a. while paying out 81% of cumulative profits in dividends, achieving 4.2% p.a. growth in dividends over that period. Looking forward, we anticipate delivery on business improvement initiatives (Simplify & Save) and delivery of targeted returns on recent capital initiatives to drive continued growth in earnings and dividends through to FY27e.
In light of this and its attractive valuation compared to Woolworths Group Ltd (ASX: WOW), Goldman feels that now could be the time to snap up Coles' shares. The broker adds:
We initiate coverage with a Buy rating. While we see FY25e as a year of consolidation on a reported basis, we see COL as providing an attractive earnings growth profile through to FY27e on an underlying basis, with high levels of cash generation supporting growth in dividends. In addition, at 9.1x FY25e EBITDA, COL continues to reflect relative value compared to WOW (~5% discount).
