As you're likely aware, Coles Group Ltd (ASX: COL) shares have absolutely crushed Woolworths Group Ltd (ASX: WOW) shares over the past year.
Here's what I mean.
If you bought Coles stock 12 months ago, you'd currently be sitting on a gain of 25.1%.
If you bought Woolworths stock instead, you'll now be nursing a one-year loss of 20.6%.
Now, that's not including dividends.
On the passive income front, Woolworths shares trade on a fully franked dividend yield of 3.0%. Coles shares trade on a slightly lower fully franked dividend yield of 2.9%.
Of course, that's all proverbial water under the bridge.
The big question now is, which of the S&P/ASX 200 Index (ASX: XJO) supermarket giants is going to deliver the biggest gains, and dividends, in the year ahead.
Image source: Getty Images
Should you buy Coles shares or Woolworths shares for FY 2026?
Woolies and Coles both reported their FY 2025 results in late August.
Coles shares closed up 8.6% on 26 August after reporting net profit after tax (NPAT) of $1.08 billion, up 2.4% from FY 2024. And underlying NPAT of $1.18 billion was up 3.1%.
It was a gloomier picture for Woolies. Woolworths shares plunged 14.7% on 27 August after reporting a 17.1% year-on-year decline in NPAT to $1.39 billion.
As for the year ahead, analysts are conflicted as to which of the ASX 200 supermarket stocks is most likely to deliver the best returns.
Weighing in for Coles shares
Morgan Stanley analyst Melinda Baxter has a current preference for Coles (courtesy of The Australian Financial Review).
According to Baxter:
The prospect of turning around sluggish sales is a costly and likely medium- to long-dated process for Woolworths. We see the potential for more downgrades before improvements are seen.
In contrast, Coles is now benefiting from supply chain efficiencies, sales momentum, ecommerce share gains, and maturing investments in retail media, promotions and loyalty.
Baxter upgraded her short-term price target for Coles shares to $26.80. That implies a potential upside of 12.0% from the current $23.93 in late Monday morning trade.
On the other hand, she downgraded her price target for Woolworths shares to $29.30. That implies a more modest potential upside of 4.7% from the current $27.99.
Weighing in for Woolworths shares
Weighing in for Woolworths is Schroders head of Australian equities, Martin Conlon. He said that with Woolies' larger market presence, it could outperform Coles shares over the longer term, if it can improve its eroding margins.
"What's pretty obvious is that Coles is beating Woolies – their sales growth is better, and they haven't seen the same margin erosion," he said (quoted by the AFR).
Conlon added, "We're probably looking at going the other way to the market, because if you look over the horizon, you're not as focused on who's beating someone in the next few months."
