Merrill Lynch bullish on Westfield Group: Is it time to buy?

The investment bank has given its take on where the value lies for investors.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As investors continue to wait for further light to be shed on the controversial merger arrangement between Westfield Group (ASX: WDC) and Westfield Retail Trust (ASX: WRT), Bank of America Merrill Lynch (BoAML) has given its take on where the value lies for investors.

On December 4 last year, both entities announced the proposal to merge their Australian and New Zealand assets to form a new entity known as Scentre Group, while the Group's international assets would be spun off to form Westfield Corporation. While the deal is widely thought to be heavily weighted in the Group's favour, it has been anticipated that it would be sweetened for the Trust.

However, the investment bank revised its outlook for the Trust, downgrading the stock to "underperform" based on the limited upside potential of the shares even if the deal does receive approval. The bank has given the Trust a price target of $3.25 and while its shares are already trading at $3.06 (roughly 5.4% above their price when the proposal was announced), there is just a 6% upside for investors. BoAML said: "With limited upside, and risks to the downside if shareholders vote against the deal, we believe the valuation is no longer compelling."

On the other hand, it recognises greater value in Westfield Group, upgrading the stock to a "buy" recommendation based on its strong international prospects. The shopping centre giant has been redeveloping its Westfield London and Croydon stores (located in South London) as well as its Ground Zero centre in New York, which all promise to be amongst the group's strongest stores.

Foolish takeaway

Westfield Group and Westfield Retail Trust have both underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the last 12 months, falling 6.8% and 1.6% compared to the market's 6.2% gain. While I believe the merger proposal will be sweetened in the Trust's favour (which could push shares higher than BoAML's price target), I am more bullish on the Group given its stronger international operations.

With shares currently trading more than 17% below their 52-week high, now would be an excellent time to stock up on the retail behemoth.

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »