Is Coles still one of the best defensive ASX shares to own?

Coles Group Ltd (ASX: COL) is one of the first businesses I think of when looking for defensive qualities on the ASX.

Australians still need groceries when economic conditions become difficult, giving the supermarket giant a dependable source of demand.

I think there is also enough growth ahead to make Coles more than simply a defensive holding.

Everyday demand is a major strength

Coles serves millions of customers buying food and household essentials each week.

That gives the business a level of resilience that companies dependent on discretionary spending cannot always match.

Consumers may change what they put in their baskets when budgets become tighter, but grocery spending itself remains difficult to avoid.

Coles also has enormous scale across stores, distribution, online shopping, and its Flybuys loyalty program. I think those customer relationships and infrastructure help reinforce its position in a highly competitive industry.

For investors looking for a share that could hold up reasonably well across a range of economic conditions, those qualities are attractive to me.

There is still a growth story

What strengthens the investment case for me is the opportunity for Coles to improve an already enormous business.

The company has invested heavily in automated distribution centres and online fulfilment infrastructure.

These investments can help Coles move products through its growing network more efficiently, improve availability, and handle growing online demand.

Small operational improvements can become meaningful when applied across a supermarket business of this size.

The earnings forecasts suggest analysts expect those efforts to translate into continued progress.

According to CommSec consensus estimates, earnings per share are forecast to rise from 98.2 cents in FY27 to $1.05 in FY28 and $1.15 in FY29.

That represents cumulative growth of around 17% over those two years.

What about the price?

At around $23.39, Coles trades on a PE ratio of approximately 24 times forecast FY27 earnings, falling to just over 20 times FY29 earnings.

I would not call that cheap. However, I think a premium can be justified for a business offering resilient demand alongside a positive earnings outlook.

Income investors also have something to consider. CommSec consensus estimates point to fully franked dividends of 83.5 cents per share in FY27, 88.8 cents in FY28, and 97.4 cents in FY29.

That starts with a forward dividend yield of around 3.6%, with the potential for the income to increase over time if those forecasts are achieved.

Foolish takeaway

Coles remains one of my preferred defensive ASX shares.

Its grocery business gives it dependable demand, while automation, online shopping, and an expanding Australian population provide opportunities to keep growing.

Coles shares carry a premium, but I think the quality of the business and forecast earnings growth make that price reasonable.

For investors seeking resilience without sacrificing the prospect of long-term growth, I think Coles remains a strong buy.

The post Is Coles still one of the best defensive ASX shares to own? appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.