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Is it time to sell your Wesfarmers Ltd shares?

Analysts have taken the knife to Wesfarmers Ltd (ASX: WES), slashing the stock to a “sell” recommendation.

According to the Australian Financial Review, in response to the blue-chip’s full year results last week a number of analysts have downgraded their outlook for Wesfarmers’ stock. Despite the $52 billion conglomerate announcing a capital return to shareholders, thanks to the cashed-up balance sheet, analysts have focussed on the tough outlook for most of the group’s non-retail divisions.

Downgrades flow

It is these non-retail businesses plus Target which appear to be concerning analysts at a number of major broking houses: Deutsche Bank downgraded from a ‘hold’ to ‘sell’; Merrill Lynch adjusted its view to ‘underperform’; Macquarie downgraded to ‘underperform’; and Credit Suisse dropped its recommendation from ‘neutral’ to ‘underperform’.

What should shareholders do?

Wesfarmers owns a suite of leading assets including retailers Coles, Bunnings, Kmart, Target and Officeworks, as well as a host of non-retail businesses including coal mining operations, chemical suppliers and industrial and safety operations.

The full year result last week saw revenues and profits increase by 4.2% and 6.1% respectively and investors initially cheered, sending the stock price up to a new 52-week high of $45.88. By the end of the week however the stock had recorded a rise of 2.6% for the five trading days and closed at $44.70.

The concern expressed by most analysts was that the turnaround in Coles may be slowing, Target remains under pressure and the non-retail businesses may decline further in FY 2015 – all these headwinds make the current pricing of the stock hard to justify.

In the past year Wesfarmers’ share price has moved almost in lock-step with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) while over the past decade it has underperformed. If an investor’s aim is to own a portfolio of stocks with the potential to outperform the index then Wesfarmers may not be the best holding for the portfolio. If however the aim is to hold a portfolio of blue-chips that will provide ‘market-like’ returns then Wesfarmers may still suit them.

Many investors own Wesfarmers for its defensive, blue-chip status and dividend, however there are better options available for income-seeking investors...like our top dividend stock for 2014-2015

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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