Shares of diversified retail giants Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) today soared as much as 2.8% and 2.3%, respectively, as global markets reacted to positive news out of Europe.
It's been a rough couple of months for the diversified retail supermarket giants, with shares in Woolies and Wesfarmers retracting 4.7% and 7.5%, respectively, over the past quarter.
Concerns over the rise of Aldi, whose financial statements yesterday unveiled strong growth, and the backdrop of macroeconomic uncertainty in Europe, have likely played a part in discounting the retailers' share prices.
Are they still good value?
I've previously opined that Woolies shares, currently $27.86, likely trade at or around fair value. That means, investors choosing to buy today probably aren't getting a bargain, but wouldn't be overpaying for the shares either. That is, of course, only true if the company can slowly stabilise its falling profit margins.
Wesfarmers shares, on the other hand, still look expensive in my opinion. Since buying Coles in 2007, Wesfarmers has grown the business healthily. In recent times, it's been able to expand Coles' profit margins – much to the inconvenience of its key rivals – while also generating big profits from its Bunnings Warehouse and Officeworks businesses.
Although there is little doubt Wesfarmers is a great company, it is facing some headwinds. As a result, I do not believe its shares ($40.68) deserve to trade at such a large premium to my intrinsic value estimates.
