Investors looking for exposure to the Australian supermarket sector might want to take note of Ord Minnett's latest recommendations.
The broker has reaffirmed its bullish stance on both Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW), maintaining the equivalent of buy ratings on the two ASX 200 giants.
Let's take a closer look at why Ord Minnett is recommending these supermarket stocks to clients.
Why Ord Minnett likes Coles shares
Ord Minnett was particularly impressed with Coles' first half performance during FY 2025, which came in ahead of market expectations. It notes that sales growth in both the food and liquor segments underpinned a strong top line performance, and cost control measures helped deliver a solid margin outcome.
Coles has also had a positive start to the second half, with sales growth in the first seven weeks slightly ahead of Woolworths.
Overall, Ord Minnett believes Coles' combination of tight cost controls and solid revenue growth is an attractive mix.
As a result, the broker recently retained its accumulate rating and raised its price target to $21.00 from $19.50. With Coles shares currently trading at $19.01, this implies potential upside of 10.5% for investors.
Why Ord Minnett likes Woolworths shares
Ord Minnett acknowledges that Woolworths' first half earnings fell short of market expectations, with the company blaming its poor performance on industrial action at distribution centres. Additionally, gross margin pressures from promotional expenses, clearance sales at Big W, and reinvestment into pricing contributed to the softer result.
But it wasn't all bad news. The broker highlights that Woolworths has now unveiled a $400 million cost-cutting plan, which it believes could be a game-changer. Ord Minnett views the new management's focus on expense reductions as a major positive, particularly in an industry where thin margins make cost control essential. It said:
The supermarket giant appears to have seen the light, however, unveiling a plan to strip $400 million in costs out of the company. New management's tighter focus on expenses – obviously a crucial variable in an industry characterised by thin margins and low sales growth relative to other sectors – is a very positive development, in Ord Minnett's view.
So, with Ord Minnett increasing its profit estimates for later years, the broker is now taking a more constructive view on Woolworths shares, upgrading its recommendation and price target.
It has put a buy rating and $36.00 (was $32.00) price target on its shares. Based on its current share price of $28.60, this implies potential upside of 26% for investors over the next 12 months.
Overall, Ord Minnett sees value in both Woolworths and Coles shares at current levels. This potentially makes them blue chip stocks to consider buying this month.
