Following the earnings miss in the February result, we feel Coles share price now reflects fair value. At 15x earnings and 5% yield there’s an opportunity to buy the stock and sell covered call options, to deliver 10% annualized cash flow.
We question the earnings outlook next year, mainly due to increased capital spending requirements. However, for the balance of 2019 we expect the share price to remain within the $11 to $11.75 price range.
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For more detail on the derivative strategy, please call our office on 1300 614 002.
