The Coles Group Ltd (ASX: COL) share price is down 0.41% to $21.70 at the time of writing on Wednesday morning. Today's drop means the supermarket giant's shares have fallen 10% from their all-time peak in early-September. For the year-to-date the shares are still 15% higher.
The Coles share price spiked in late-August and early-September on the back of a robust FY25 result. It also posted a strong quarterly update in late October, where it reported a 3.9% increase in group sales and quarterly results generally in line with analyst expectations.
Now, in a new note to investors, analysts at Macquarie Group Ltd (ASX: MQG) said toured Coles food manufacturing facilities and discussed read-made meal strategy plans with management. Following the tour, here's the broker's latest outlook for the stock.
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Robust upside ahead for Coles shares
In the investor note, Macquarie confirmed its outperform rating and $26.10 target price on Coles shares. At the time of writing this implies a potential 20.3% upside for investors over the next 12 months.
"We remain attracted to ongoing execution, benefits from supply chain investment and strong earnings growth outlook, with ~10% EPS CAGR over the next three years driving returns," the broker said in its note.
What did Macquarie think of the Coles food manufacturing facilities tour?
The broker said the tour of Coles' facilities in NSW showcased the supermarket giant's vertically integrated fresh food production sites.
The sites are indicative of a focus on vertical integration, supply chain efficiency and private label, Macquarie explained. It added that benefits include customer satisfaction and cost efficiency.
The broker also noted that there were key takeaways for key assets Retail Ready Operations Australia (meat), Fresh Milk Co (Milk), and Chef Fresh (Convenience Meals).
"The facility processes both red and white meat, partnering exclusively with trusted livestock producers. Further, it operates 24/7 processing 5,500 tonnes of product per month, covering >80 SKUs. The facility supplies >600 stores, giving supply surety and improving shelf life of retail ready meat products," the broker said of Coles' Retail Ready Operations.
When discussing the Coles Fresh Milk Co, Macquarie said:
The NSW site was acquired in 2024 from Saputo, operating five days per week for 16 hours per day. ~200m litres of milk are processed every year from two facilities, including a second in VIC, with capacity to process up to ~450m litres. The level of automation was a standout in the facility, with almost zero manual handling of milk between supplier delivery and distribution.
Meanwhile, regarding Chef Fresh, the broker said:
The site has the capacity to manufacture 970 tonnes of cooked products and 1.5m meals a week. It produces >100 SKUs across Coles Finest, PerFORM, Coles Kitchen and Nature's Kitchen. Chef Fresh supplies ~90% of private label convenience meals. Further, COL called out ready-made meals as a key growth area.
