The Coles Group Ltd (ASX: COL) share price will be one to watch this week when it releases its third quarter update.
Ahead of the release, I thought I would take a look to see what is expected from the supermarket giant.
What is the market expecting from Coles?
According to a note out of Goldman Sachs, its analysts note that the supermarket industry is entering an “interesting phase”. This is due to it cycling through the COVID-19 pantry stocking boom late in the third quarter of FY 2020.
In fact, according to the Australian Bureau of Statistics, supermarket and grocery sales grew 24.8% in March 2020. As a result, Goldman expects both Coles and rival Woolworths Group Ltd (ASX: WOW) to have seen comparable sales decline notably during March. Particularly given recent data out of National Australia Bank Ltd (ASX: NAB).
The broker commented: “NAB reported cashless retail sales in the Supermarket and grocery segment to have been down c. -14% in March 2020. By comparison, our comparable growth estimate for COL implies March 2021 trading at -14.5% assuming that the early quarter trends continued into end of Feb 2021. Similarly, for WOW our estimates imply a comparable sales decline of c. -13% for March 2021.”
What does Goldman expect Coles to report?
Goldman expects Coles to report a 3% decline in comparable food sales for the quarter but a 2% increase in liquor sales.
This is expected to lead to total sales of $9,039.6 million, comprising food sales of $7,960.4 million and liquor sales of $802.5 million.
Is the Coles share price in the buy zone?
Despite the softer trading, Goldman Sachs remains positive and believes the Coles share price is in the buy zone.
It commented: “While sales are expected to be volatile, we continue to believe that industry profitability will be manageable over CY21 and believe the current market concerns over a price war in the sector are overstated.”
Goldman has therefore retained its buy rating and $20.70 price target on its shares. Based on the current Coles share price, this represents potential upside of almost 32%.
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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
The post What to expect from the Coles (ASX:COL) Q3 update appeared first on The Motley Fool Australia.
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