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.
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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.
