Coles Group Ltd (ASX: COL) is one of those ASX shares that can be easy to overlook because the underlying business is so familiar.
Australians keep turning up for groceries each week, while Coles has spent years investing in how those groceries are moved, picked, and delivered.
With the shares trading around $23.17 on Thursday, does the current price still offer good value?
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The shares carry a premium
According to CommSec, consensus earnings per share estimates stand at 90 cents in FY26, 96.6 cents in FY27, and $1.12 in FY28.
At the current share price, that puts Coles on a PE ratio of roughly 26 times forecast FY26 earnings.
I would certainly describe that as a premium valuation for a supermarket operator.
But I think looking only at the FY26 multiple misses an important part of the story.
Analysts are expecting earnings per share to increase by around 7% in FY27 before accelerating further in FY28. By then, forecast earnings would be almost 25% higher than in FY26.
If Coles delivers that growth, today's valuation begins to look considerably more reasonable.
Using consensus estimates, its PE ratio would fall to 24 times in FY27 and around 21 times in FY28.
Where could that growth come from?
One reason I am comfortable with the forecasts is that Coles has already spent heavily on improving its operations.
Its automated distribution centres are designed to make replenishing stores more efficient, while its automated customer fulfilment centres are helping the company handle online grocery orders at greater scale.
These investments are now moving beyond the expensive implementation stage. Coles said at its half-year result that supermarket earnings benefited from the annualised contribution from its automated distribution centre program as well as the absence of major implementation and transition costs.
I think Coles is now in a better position to reap the benefits of that spending.
Coles does not need dramatic growth in grocery demand to increase earnings. Making an enormous existing business more efficient can have a meaningful impact when those improvements are spread across its store and supply chain network.
Online shopping provides another avenue. The investments Coles has made in fulfilment should allow it to serve more customers in the way they want to shop while improving the economics of that channel over time.
Dividends could grow as well
The consensus dividend forecasts are also moving in the right direction.
The market expects dividends per share of 75.5 cents in FY26, 82 cents in FY27, and 95.3 cents in FY28.
At the current price, these payouts represent dividend yields of 3.2%, 3.5%, and 4.1%.
I like that progression because it gives shareholders another way to benefit if the expected earnings growth comes through.
One thing to keep in mind
Investors will not have to wait long for an important update.
Coles is scheduled to release its FY26 results on 25 August.
That result could change analyst forecasts and therefore the valuation calculations above. I would pay particular attention to what management says about the benefits from automation, costs, consumer behaviour, and the outlook for the year ahead.
Foolish takeaway
I think the Coles share price offers reasonable value at around $23.17.
The shares are clearly priced at a premium, but I believe the expected earnings growth helps justify it. If earnings per share reach around $1.12 in FY28, the multiple investors are paying today comes down significantly without requiring the share price to do anything.
With a major result only days away, there could be some short-term movement ahead. But for investors looking several years into the future, I think Coles remains a share worth buying.
