Why Coles shares were just downgraded by Bell Potter

The broker is no longer recommending the supermarket giant as a buy.

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Coles Group Ltd (ASX: COL) shares could be fully valued now.

That's the view of analysts at Bell Potter, who have just downgraded the supermarket giant's shares.

a woman holds her hands to her temples as she sits in front of a computer screen with a concerned look on her face.

Image source: Getty Images

What is the broker saying?

Bell Potter has been looking at Coles' third-quarter update. While it was pleased with the performance of its Food business, it was disappointed with its Liquor business. It said:

Supermarkets: Revenue growth of +4.0% YOY to $9,781m, compared to our $9,692m forecast (and VA of $9,770m). Growth in the early part of 4Q26e has continued at rates comparable to 3Q26 and this compares to the +3.7% YoY growth recorded in the first eight weeks of the quarter. Outperformance relative to the sector seen in 4Q25-1Q26 looks to be continuing, albeit at a slower rate than that of WOW. E-commerce sales grew +24.8% YoY, reaching 13.6% of sales.

Liquor revenue down -3.9% YoY at $781m (BPe $814m and VA $784m), with 13 net store closings in the period. E-commerce sales grew +1.8% YoY and accounted for 7.3% of sales. The category remains competitive.

This has led to the broker trimming its earnings estimates. It explains:

EPS changes -3% in FY27e and -2% in FY29e. Changes reflect softer liquor sales growth, modestly lower GM assumptions in supermarkets and higher base interest rates.

Coles shares downgraded

In response to the update, the broker has downgraded Coles shares to a hold rating (from buy) but with an improved price target of $22.80 (from $22.35). This is only a touch ahead of where its shares are trading at currently.

Bell Potter made the move largely on valuation grounds. However, it also notes that competition is increasing for its food business at a time when food inflation is rising.

And while Coles shares trade at a discount to Woolworths Group Ltd (ASX: WOW) shares, it sees better value opportunities elsewhere in the consumer staples space. It said:

We downgrade our rating from Buy to Hold. The shortfall between retail shelf price inflation and underlying food inflation in both WOW and COL has widened in the recent quarter. The competitive backdrop appears to be lifting and liquor remains challenged in a rising cost environment. Trading a discount to WOW, there is a relative value argument to be made, particularly given the more limited exposure to discretionary channels in the near term, however we see more compelling GARP opportunities elsewhere in the consumer staples space at this juncture.

Motley Fool contributor James Mickleboro has positions in Woolworths Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Woolworths Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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