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Time to stock up: Broker says Coles share price is ‘good value’

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The Coles Group Ltd (ASX: COL) share price has been a positive performer over the last 12 months.

Since this time last year, the supermarket giant’s shares have risen 12%.

This is more than triple the return of the ASX 200 index over the same period.

Can the Coles share price keep rising?

The good news for investors is that one leading broker still sees plenty of room for the Coles share price to climb further from here.

According to a note out of Morgans, in response to Coles’ third-quarter update, its analysts have retained their add rating and lifted their price target to $20.65.

Based on the current Coles share price of $18.54, this implies potential upside of approximately 11.5% over the next 12 months.

In addition, the broker is forecasting fully franked dividends of 61 cents per share in FY 2022 and 64 cents per share in FY 2023. This implies yields of 3.3% and 3.45%, respectively.

What did the broker say?

Morgans was pleased with Coles’ performance during the third quarter and notes that the company’s sales came in ahead of its estimates.

It commented: “Supermarkets LFL sales increased 3.9% (vs MorgansF +3.6%) which benefitted from elevated demand in early January due to Omicron but was impacted by floods in NSW and QLD with supply challenges impacting availability and sales.”

“Online was again a key standout with sales growth of 45% reflecting increased capacity and Omicron-related isolation demand. Online now represents 7.8% of total sales vs 5.6% in the pcp.”

Why is Coles a buy?

The note reveals that Morgans believes the Coles share price is trading at an attractive level considering its defensive qualities and growth opportunities.

The broker concludes: “Trading on 24.1x FY23F PE and 3.4% yield we continue to see COL as offering good value with the company possessing defensive characteristics and a strong balance sheet (1H22 net cash $54m) allowing ongoing investment for growth.”

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