Is this a compelling reason to buy Coles shares over Woolworths?

Two couples race each other in supermarket trollies, having a great time, smiling and laughing.Two couples race each other in supermarket trollies, having a great time, smiling and laughing.

Ah, the great ASX debate: Coles Group Ltd (ASX: COL) shares versus Woolworths Group Ltd (ASX: WOW) shares.

Supermarket giants Coles and Woolworths are two of the most similar companies on the ASX. Both consumer staples stocks have been competing in the same market for customers and investors for decades.

Which is the better investment? That depends on who’s being asked. Some investors prefer Woolworths’ clear domination of the Australian grocery market. Others might like the cheaper Coles share price (on a price-to-earnings (P/E) basis) and the higher dividend yield.

But Coles may have an ace up its sleeve in 2023 that could help settle the debate.

ASX broker rates Coles shares as a buy today

As we covered earlier this week, ASX broker Citi recently came out with a highly bullish outlook on Coles. The broker gave the supermarket chain a buy rating, together with a 12-month share price target of $20.20.

The primary reason Citi sees so much potential for Coles is the company’s new automated distribution centre (ADC) in Redbank, Queensland. Citi reportedly toured the new facility and reckons Coles is “moving in the right direction”, with ADCs having “the potential to provide a cost advantage over competitors”.

According to Coles:

The first ADC of its kind in Australia, it will revolutionise the way we get the products customers want, where and when they need them… The ADC will support less manual handling, more flexible rosters and greater opportunities to rotate through tasks.

The new ADC is one reason why Citi is forecasting Coles to increase its dividends to 69 cents per share for FY2023. Then to 73 cents for FY2024 and 80 cents for FY2025. Coles shares have paid out a total of 66 cents per share in fully-franked dividends over the past 12 months. That gives the Coles share price a dividend yield of 3.64% today.

Woolworths is also investing in automation technology for its supply chains. But it seems that Citi thinks Coles has the upper hand here.

The Coles share price has slightly outperformed that of Woolworths over the past five years, as you can see below:

But only time will tell if the next five years will bring the same outperformance for Coles investors.

The post Is this a compelling reason to buy Coles shares over Woolworths? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen 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 has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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