Coles Group Shares Downgraded by Analysts
Coles Group Ltd (ASX: COL) shares may be fully valued at the moment, according to analysts at Bell Potter. The brokerage has recently downgraded the supermarket giant’s shares, citing a range of factors that have influenced their decision.
Key Points from Bell Potter’s Analysis
Bell Potter conducted an in-depth review of Coles’ third-quarter update. While they were pleased with the performance of the Food business, they expressed disappointment with the Liquor business. Here are some key points from their analysis:
Supermarkets: Revenue growth reached +4.0% YoY, amounting to $9,781m, which is slightly above their forecast of $9,692m and the actual value (VA) of $9,770m. The early part of 4Q26e has continued at rates comparable to 3Q26, which is slightly better than the +3.7% YoY growth recorded in the first eight weeks of the quarter. Outperformance relative to the sector seen in 4Q25-1Q26 appears to be continuing, albeit at a slower rate than that of Woolworths Group (WOW). E-commerce sales grew by +24.8% YoY, reaching 13.6% of sales.
Liquor: Revenue declined by -3.9% YoY to $781m (BPe $814m and VA $784m), with 13 net store closings in the period. E-commerce sales grew by +1.8% YoY and accounted for 7.3% of sales. The category remains highly competitive.
This performance has led Bell Potter to trim its earnings estimates, noting that:
- EPS changes: A decrease of -3% in FY27e and -2% in FY29e. These changes reflect softer liquor sales growth, modestly lower gross margin (GM) assumptions in supermarkets, and higher base interest rates.
Impact on Coles Shares
In response to the update, Bell Potter has downgraded Coles shares to a hold rating (from buy) but has increased its price target to $22.80 (from $22.35). This is only slightly ahead of where the shares are currently trading.
The downgrade was primarily based on valuation grounds. However, the broker also notes that competition is increasing for Coles’ food business at a time when food inflation is rising.
Competitive Landscape and Value Opportunities
While Coles shares trade at a discount to Woolworths Group (ASX: WOW) shares, Bell Potter sees better value opportunities elsewhere in the consumer staples space. They explained:
Retail shelf price inflation vs. underlying food inflation: The shortfall between these two metrics has widened in the recent quarter for both WOW and COL. The competitive backdrop appears to be lifting, and liquor remains challenged in a rising cost environment.
Relative value argument: Trading at 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, the broker sees more compelling GARP (Growth at a Reasonable Price) opportunities elsewhere in the consumer staples space at this juncture.
Final Thoughts
The decision by Bell Potter to downgrade Coles shares highlights the current challenges facing the company, particularly in the Liquor segment. While the Food business continues to perform well, the broader market dynamics and rising costs are putting pressure on Coles’ overall valuation.
Investors considering Coles Group shares should carefully evaluate the company’s performance against its competitors and the broader market trends. With the analyst community suggesting that better opportunities may exist elsewhere, it’s essential to weigh all factors before making an investment decision.
