Is the Wesfarmers Ltd share price good value?

The Wesfarmers Ltd (ASX: WES) share price has been on a roller-coaster ride this past month, falling 6%.

With the share price falls in rival Woolworths Limited (ASX: WOW) plastered across news mastheads; the owner of Coles, Bunnings Warehouse, Target, Kmart, Officeworks and more, has had a tough trot of late – unsurprisingly.

Source: Google Finance

Source: Google Finance

However, the volatile share price hasn’t perturbed Wesfarmers’ management from kicking goals operationally. Indeed, Coles is dominating Woolworths in the supermarkets division, Bunnings Warehouse is Australia’s best DIY home improvement business; Officeworks is unrivaled, and Kmart and Target are leading the Australian general merchandising market.

There are a couple of blemishes on the conglomerate business, sure. The chemicals, industrials, and resources businesses are points of weakness for Wesfarmers, but they contribute just 8% of sales.

Time to sell?

Despite its market-leading positions, yesterday, analysts at UBS moved to downgrade their price target on Wesfarmers’ shares. To justify a drop in their fair value estimate from $43.10 to $41.50, analysts cited competitive pressures for Coles, a revised downgrade in forecast coal prices, and a slowing housing market (which would impact Bunnings). The bank maintained its ‘neutral’ rating.

Buy, Hold or Sell?

In my opinion, the Wesfarmers share price is expensive. However, I wouldn’t sell it because it’s undoubtedly a great long-term prospect – I just wouldn’t buy in at today’s prices. Moreover, perhaps my thinking is the same as the UBS analysts; but I’d like to see how Coles responds to competitive pressures from Woolworths, Aldi, Costco and Lidl before buying in.

Until then, I’m getting my fill of dividends elsewhere…

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Motley Fool contributor Owen Raskiewicz has a financial interest in Woolworths Limited.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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