This week, the financial press has been inundated with stories about Coles’ and Woolworths’ differing fortunes; after all, their business models are the same. Over the last five days, COL has advanced +9.6% while WOW has tumbled 12.9%, another more than 20% relative performance move, and over the last year, it’s been closer to 30%! At MM, as we don’t own COL, we look at their relationship from a slightly different perspective. When we decide to move down the “risk curve”, consumer staples often deliver outperformance, hence we consider if WOW has fallen too far &/or is COL too expensive. One thing is for sure – the momentum traders will have been buying COL ahead of WOW. We’re thinking about what’s next.
Coles (COL): It is delivering operationally, including at the start of this financial year. It’s now trading at an Est P/E of 24.5x FY26 post-result, more than 10% above its average valuation of the last 5 years. The stock is forecast to yield around 3% fully franked over the next 12 months. There are no alarm bells here for MM in a rich market; a stock beating expectations should be trading at a premium to recent years.
Woolworths (WOW): Continues to struggle compared to COL, including at the start of this financial year. It’s currently trading at an Est P/E of 22.7x FY26, less than 10% below its average valuation of the last 5 years. The stock is forecast to yield, similar to COL, around 3% fully franked over the next 12 months. This is not flashing as particularly cheap to MM; supermarkets can be akin to oil tankers, and they take time to turn around, even with retail veteran Amanda Bardwell now at the helm.
- We see no reason to bang the WOW drum over COL at this stage, with the latter on course to test its COVID low – nothing contrarian here.
MM prefers COL to WOW at this stage
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Coles Group (COL) v Woolworths Group (WOW)
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Coles Group (COL) v Woolworths Group (WOW)
