The Coles Group Ltd (ASX: COL) share price is ending the week in style.
In afternoon trade, the supermarket giant’s shares are up almost 3% to $18.00.
Why is the Coles share price racing higher?
The catalyst for the rise in the Coles share price on Friday appears to have been a bullish broker note out of Citi.
According to the note, the broker has upgraded the company’s shares to a buy rating with an improved price target of $19.60.
Based on the current Coles share price, this implies a potential return of 9% for investors before dividends. If you include dividends, the potential return stretches to approximately 12.5%.
What did the broker say?
Citi has been looking through the retail sector and has upgraded its estimates and recommendations to account for expected trading conditions post-COVID.
While this led to an upgrade for Coles, it has led to Citi downgrading Metcash Limited (ASX: MTS) shares to a neutral rating with a $4.10 price target. The broker has also retained its neutral rating and cut its price target on Woolworths Group Ltd (ASX: WOW) shares to $39.50.
Why does Citi prefer Coles?
Citi’s positive view on the Coles share price appears to be largely due to its valuation.
It recently commented: “Coles sales growth in Supermarket and Liquor accelerated in the last seven weeks compared to the first seven weeks update provided in August. Within Supermarkets, deflation of just 0.3% demonstrated improvement on 4Q21. The outlook for both inflation and volumes for the rest of FY22 is positive given supply chain cost pressures, moderating fruit deflation and pent up demand for gatherings of family and friends. […] We prefer Coles over Woolworths given the LFL sales growth differential is closing and Woolworths is trading at a ~25% premium to Coles.”
The post Broker upgrade sends Coles (ASX:COL) share price surging higher appeared first on The Motley Fool Australia.
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More reading
- Halo Food (ASX:HLF) share price leaps 7% on Coles deal
- Why has the Woolworths (ASX:WOW) share price underperformed Coles in the last month?
- Coles (ASX:COL) share price slips as the company prepares for a new era
- 5 things to watch on the ASX 200 on Wednesday
- Can Woolworths (ASX:WOW) win its delivery battle against Coles?
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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