Coles Group Ltd (ASX: COL) shares came crashing down to earth on Friday.
Investors were selling the supermarket giant's shares after the release of its half-year results.
Is this a buying opportunity? Let's see what Bell Potter is saying about this blue chip.
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What is the broker saying?
Bell Potter was pleased with its half-year results, noting that its profit was ahead of its expectations. It said:
COL reported a 1H26 underlying NPAT modestly ahead of our expectations but inline with market at $676m (BPe $648m).
Revenue of $23,618m was up +2.5% YOY (vs. BPe $23,793m and VA $23,792m). EBITDA of $2,205m was up +7.8% YOY (vs. BPe of $2,201m and VA $2,215m). Underlying NPAT of $676m was up +12.4% YOY (vs. BPe of $648m and VA $674m). Headline NPAT of $511m includes an after-tax charge of $165m related to historical staff underpayments.
However, due to a poor performance from the Liquor business, the broker has trimmed its estimates. It adds:
Key outlook comments included: (1) Supermarket sales growth through first 7wks was +3.7% YoY (+5.3% YoY ex-tobacco); (2) liquor sales growth through first 7wks are down -2.5% YoY; and (3) Liquor is expected to incur $7m NRI's in FY26e, which when combined with the $9m incurred in 1H26 would imply a total of $16m, modestly lower than the original $20m guidance.
NPAT changes -1% in FY26e, -2% in FY27e and -4% in FY28e, with the majority of the reduction in the liquor business. Our target price falls to $22.35/sh (prev. $24.30/sh) reflecting earnings changes are higher risk free rate assumption.
Should you invest?
According to the note, Bell Potter has retained its buy rating on Coles shares with a trimmed price target of $22.35 (from $24.30). Based on its current share price of $20.56, this implies potential upside of 9% for investors over the next 12 months.
In addition, the broker is forecasting a fully franked 3.6% dividend yield, which boosts the total potential return beyond 12%.
Commenting on its buy recommendation, the broker said:
Continued delivery against 'Simplify & Save' initiatives ($133m delivered in 1H25 and $698m to date vs. a target of $1Bn by FY27e) and generating a return on ADC/CFC investments (~$1.45Bn investment). COL has returned to a discount to WOW, though this is likely warranted given the lower level of forecast growth.
