Christmas is coming, but is the Coles (ASX:COL) share price already overstuffed?

woman shrugging

The Coles Group Ltd (ASX: COL) share price is on course to end the week with a small gain.

At the time of writing, the supermarket giant’s shares are up almost 1% to $17.70.

Though, Coles’ shares remain in negative territory year to date with a 4% decline.

Is the Coles share price in the buy zone?

Despite the weakness in the Coles share price this year, one leading broker isn’t in a rush to invest. In fact, its analysts are recommending investors sell the company’s shares.

In response to Coles’ first quarter update last week, UBS retained its sell rating and $16.50 price target on the company’s shares.

Based on the current Coles share price, this implies potential downside of almost 7% for investors before dividends.

Why is UBS bearish?

Although the supermarket operator delivered a better than expected first quarter sales update, it wasn’t enough for UBS to change its view on the Coles share price.

According to the note, the broker believes that the outlook for food sales in Australia is deteriorating and expects this to weigh on the performance of both Coles and rival Woolworths Group Ltd (ASX: WOW).

It is for this reason that its analysts also have a bearish view on Woolworths’ shares. So much so, last week the broker downgraded the retail giant’s shares all the way to a sell rating from a buy rating and cut the price target on them to $37.00.

Based on the current Woolworths share price of $39.17, this suggests there is potential downside of 5.5% before dividends.

All in all, the broker feels investors would be best staying away from the food retailing sector at this point and focusing on other areas of the share market instead.

The post Christmas is coming, but is the Coles (ASX:COL) share price already overstuffed? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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