This morning analysts at Goldman Sachs released a note with their appraisal of the Australian supermarket industry and Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW).
What did Goldman Sachs say?
The broker notes that things have changed greatly in the industry since the onset of the pandemic.
Goldman commented: “Since then the industry outlook has drastically changed due to: Consumption habits shifting towards home consumption due to temporary closure of restaurants, social distancing requirements and the virus scare in general; Travel restrictions, particularly overseas travel, leading to a potential shift in tourism spending and a slowdown in the Australian resident population growth and; a changed macro environment with recessionary conditions expected in the short term.”
The broker was expecting industry growth of 4.5% per year over the medium term. This comprised inflation of +2.5% and volume growth of +2%.
However, it has now revised its forecasts lower largely because of a slowdown in population growth due to lower overseas migration.
Its analysts explained: “We expect industry growth in FY21 to be constrained to 2.4% vs. 10 year average of +3.8%. If sustained, slower population growth (migration) could detract from FY22 growth as well.”
Should you buy Coles or Woolworths?
Despite downgrading its industry growth forecasts, Goldman Sachs remains very positive on Coles.
Its analysts have retained their conviction buy rating with a slightly reduced price target of $18.50. This implies a potential return of 9.5% over the next 12 months without dividends and approximately 13.3% including them.
The broker is a little less positive on Woolworths for valuation reasons. It has retained its neutral rating and has a $36.80 price target on the company’s shares. This compares to its last close price of $36.90.
While I think that both companies are arguably in the buy zone, I would have to agree that Coles is the better option of the two. I feel its shares offer a compelling risk/reward at the current level.
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
More reading
- 3 top ASX dividend shares to buy for FY21
- Can the Coles share price climb 12% again in July?
- Morgans picks the best FY21 ASX buys for the COVID-19 world
- ASX 200 up 1.2%: Big four banks rebound, WiseTech CEO dumps shares, Collins Foods impresses
- Is it time for a plan B with ASX 200 shares?
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post Should you buy Coles or Woolworths shares? appeared first on Motley Fool Australia.
from Motley Fool Australia https://ift.tt/3ipKlaS
Leave a Reply