Coles Earnings: Recent Trading Outperformance Versus Woolworths Likely Short-Lived

The value gap between Australia’s two largest supermarket operators has been dramatically closing over the space of a week, following their first-half fiscal 2024 results. However, both defensive plays screen as overvalued. We think the market underestimates the risk of relatively low-growth, defensive yield stocks like Coles and Woolworths derating, given higher prevailing interest rates.