What does JP Morgan think Coles shares are worth?

Coles shares are up 23% for the year to date.

| More on:
A woman ponders over what to buy as she looks at the shelves of a supermarket.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Coles shares have increased by 23% year to date, outperforming the ASX 200 Index.
  • JP Morgan attributes Coles' recent sales momentum to market share gains and an improving consumer environment, but maintains a neutral rating due to potential cost pressures and operational challenges.
  • With JP Morgan's price target below the current share price, investors might consider waiting for a more favourable entry point for Coles shares.

Coles Ltd (ASX: COL) shares have attracted significant attention this year. 

The ASX 200 supermarket giant is up 23% for the year to date, significantly outperforming the S&P/ASX 200 Index (ASX: XJO), which has risen 10% over the same period. 

Coles also offers an attractive dividend yield of nearly 3%, making it also appeal to those after passive income. 

Given Coles' wide appeal, ASX investors may be wondering whether the ASX 200 consumer staples stock is attractively valued today.

Let's see what one leading expert recently had to say.

JP Morgan evaluates Coles

Coles shares surged 8% the day it released its FY25 results. As The Motley Fool's Bernd Struben reported at the time, this was mainly attributed to Coles' particularly strong supermarket revenue growth of 4.3%.

Following its FY25 result, investment bank JP Morgan Chase & Co (NYSE: JPM) released a new research note evaluating Coles' result and future prospects. 

JP Morgan described Coles' sale momentum over the prior five months as materially stronger, which is attributed to both market share gains and an improving consumer backdrop. 

The investment bank said Coles is likely benefiting from rival Woolworths Group Ltd (ASX: WOW)'s focus on cost-out, with significant management turnover contributing to a drop in execution.

On 26 August, JP Morgan gave Coles a neutral rating and increased its price target from $20 to $21.80. 

Given that Coles shares closed at $23.16 on Friday, this suggests they will decline from here over the next 12 months.

Justifying this rating, JP Morgan said:

We have a Neutral rating. Coles is likely to face cost pressures with bricks and mortar operating deleverage, as well as ongoing losses from Ocado CFC under-utilisation and elevated wage growth expected to continue in the medium term. However, market share losses to Aldi are starting to moderate as value for shoppers becomes less important against an easing cost of living backdrop, and a gross margin-focused strategy is expected to be utilised to offset cost pressures.

JP Morgan's valuation implies a forward price-to-earnings (P/E) multiple of 21, which would represent a 2% discount to Woolworths. 

For context, Woolworths has significantly underperformed Coles for the year to date, falling 20%.

Foolish Takeaway

Based on their performance for the year to date, Coles shares are an attractive investment for both capital growth and dividends. However, after reviewing its FY25 results, JP Morgan assigned the ASX 200 stock a neutral rating. According to JP Morgan's price target and the current share price, Coles shares are set to decline over the next 12 months. Those looking to buy Coles shares should wait for a more attractive entry point.

JPMorgan Chase is an advertising partner of Motley Fool Money. Motley Fool contributor Laura Stewart has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase. 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.

More on Broker Notes

man with dog on his lap looking at his phone in his home.
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

Two workers at an oil rig discuss operations.
Broker Notes

Should you buy Santos, Beach Energy or Woodside shares? Here's Macquarie's top pick

Macquarie has released its new share price expectations for Santos, Beach Energy and Woodside shares.

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

person holding hat
Broker Notes

3 ASX 200 large-cap shares just re-rated by analysts

We reveal the latest views on an ASX 200 large-cap miner, retailer, and consumer staples leader.

Read more »

A young man goes over his finances and investment portfolio at home.
Broker Notes

Down 80% in 2025: Is it time to buy this beaten down ASX stock?

Let's see what Bell Potter is saying about this stock after its heavy decline.

Read more »

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Broker Notes

NextDC shares jump 11% on major OpenAI deal

This data centre operator will be home to the AI giant in Australia.

Read more »

A large clear wine glass on the left of the image filled with fifty dollar notes on a timber table with a wine cellar or cabinet with bottles in the background.
Broker Notes

Macquarie names 3 top dividend-paying ASX 200 shares to buy today

Macquarie expects these three dividend paying ASX 200 shares to outperform in 2026. Let’s see why.

Read more »

Confident male executive dressed in a dark blue suit leans against a doorway with his arms crossed in the corporate office
Broker Notes

Broker reveals ratings on 4 ASX 200 sector leaders

Prefer ASX 200 large-cap stocks? Here are some new ratings and price targets for four sector leaders.

Read more »