Why the Coles Group (ASX:COL) share price just got upgraded to “buy”

The Coles Group Ltd (ASX: COL) share price is outperforming its largest rival after it was upgraded to “buy” by a leading broker.

The COL share price jumped 0.2% to $17.44 during lunch time trade with the Woolworths Group Ltd (ASX: WOW) share price fell 0.7% to $36.88.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) slipped 0.2% at the time of writing.

Broker upgrades Coles share price to “buy”

The stronger performance by the Coles share price coincides with Credit Suisse’s decision to lift its rating on the stock to “outperform” from “neutral”.

The broker’s move comes as it forecasts Australia will have one million more residents to feed come Christmas. This represents around a 4% increase in the population.

These “extra” people are made up of Aussies who can’t travel abroad this year for holidays due to COVID-19 restrictions.

It also includes long-term visitors, such as international students, who find themselves stuck here as international borders remain shut.

1 million COVID population boost

“The addition to the resident population in Australia is likely to be a significant benefit to domestic retail,” said the broker.

“We highlight food and recreational goods retail as areas likely to benefit disproportionately from a greater level of domestic expenditure.”

Credit Suisse found that the rate of retail spending growth was negatively impacted by an increasing number of resident departures in the past.

ASX stocks best placed to benefit

It added that the increase in spending is likely to be larger than the increase in population for 2020 and that food retailers will be among the biggest beneficiaries.

That’s understandable given the amount of food we feast on during the festive season.

This bullish outlook prompted Credit Suisse to upgrade its price target on Coles to $20.16 a share. It increased the Woolworths target by 12 cents to $40.43 and the Metcash share price by 7 cents to $3.62.

Coles better than Woolworths?

“We prefer COL to WOW,” explained Credit Suisse.

“In our view, a stronger cost out programme, lower level of capital expenditure, and higher payout ratio should result in absolute appreciation in COL and out-performance relative to WOW.”

The broker rates Woolworths as “neutral” and reiterated its “outperform” recommendation on Metcash.

Another retailer that the broker is urging investors to buy based on the same thematic is the Super Retail Group Ltd (ASX: SUL) share price.

The group is well placed to benefit from the multi-year increase in road trips and outdoor recreational activity. It also has a superior online offering compared to its rivals.

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Motley Fool contributor Brendon Lau owns shares of Woolworths Limited. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. 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.

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