The Coles Group Ltd (ASX: COL) share price has gone through plenty of volatility this year, but it seems to be ending the year on a high, as shown on the chart below. With the company close to its 52-week high, we're going to look at whether the company is an attractive investment with 2025 in mind.
As one of the largest supermarket businesses in Australia, it's benefited from the inflationary period over the last couple of years. However, now that food inflation has significantly reduced, the sector is no longer getting an extra revenue boost.
So, will Coles be able to keep growing? Let's examine its commentary and some analyst forecasts.
Latest from the supermarket
For the first 13 weeks of FY25, the business reported total sales growth of 2.9% to $10.55 billion, with supermarket sales growth of 3.5%. The supermarket segment reported inflation of 1.5%, or 1% excluding tobacco. Sales updates can be very influential on the Coles share price.
In its outlook commentary, the company said in the early part of the second quarter of FY25, its supermarket sales growth had remained "broadly in line' with the first quarter.
It will be interesting to see how the company's sales grow over the rest of FY25 and whether it benefits from the distribution centre strikes at Woolworths Group Ltd (ASX: WOW).
The business also recently announced it will construct its third Witron automated distribution centre (ADC) in Victoria, following the completion of the ADCs in Queensland and NSW. Coles expects these ADCs to increase the efficiencies of its business.
Forecasts for Coles shares in 2025
UBS thinks Coles will benefit from the new Witron ADCs and other initiatives, such as reducing stock loss (theft) and growing retail media.
The broker noted that new ADCs are helping reduce supply chain costs and improve the in-stock position.
Coles is predicted by UBS to see revenue growth of approximately 1% to $44 billion, operating profit (EBIT) growth of 2% to $2.1 billion, and flat net profit after tax (NPAT) of $1.11 billion. Coles is trading at 23x FY25's estimated earnings.
The supermarket business is predicted to deliver a pleasing 6% dividend hike to 72 cents per share. At the current Coles share price, that would translate into a fully franked dividend yield of 3.8% and a grossed-up dividend yield of 5.5%, including franking credits.
Coles share price target
A price target is the price a broker thinks the share price will be in 12 months from the date of the note.
UBS' price target of $19.50 implies a small rise of around 4% within the next year.
Time will tell whether the broker is right or not – it currently has a buy rating on the business.
