On Friday Wesfarmers Ltd (ASX: WES) surprised the market when it announced plans to demerge its Coles supermarket business.
Its shares finished the day over 6% higher as investors responded positively to the development.
Brokers have now had time to crunch the numbers and give their opinion on the company's plan. Here's what they are saying:
Credit Suisse.
A note out of Credit Suisse reveals that its analysts think the move is a positive. The broker believes Coles could become a high cash generating supermarket and an attractive option for investors. It values Coles between $17 billion and $18 billion. Credit Suisse has an outperform rating and $44.98 price target on Wesfarmers' shares.
Deutsche Bank.
A note out of Deutsche Bank reveals that its analysts see this active approach to portfolio management as a positive and believe the move could result in Wesfarmers' delivering higher growth and stronger returns. It hans't been enough to make the broker change its rating, though. Deutsche has retained its hold rating and $40.00 price target.
Macquarie Group Ltd (ASX: MQG)
Analysts on Macquarie's equity desk appear to be pleased that Wesfarmers is looking to release hidden value. It believes that the higher-growth businesses left over after the demerger will be a more attractive option for investors and that strategic initiatives will now have the potential to be more material to its earnings. Macquarie has an outperform rating and $50.03 price target on its shares.
Morgan Stanley.
Analysts at Morgan Stanley aren't as bullish as Credit Suisse and Macquarie. A note out of the investment bank reveals that its analysts have stuck with their $40.00 price target and underweight rating despite the plans. The broker doesn't believe that Coles will perform any better as a separate entity and expects incremental costs of upwards of $20 million.
Morgans.
According to a note out of Morgans, the broker thinks that the demerger is logical given the headwinds being faced by the supermarket industry. Furthermore, its analysts believe that it could allow the company to invest in its high-growth businesses or even consider earnings accretive acquisitions. Morgans has retained its hold rating but lifted its price target to $44.65.
Ord Minnett.
A note out of Ord Minnett reveals that its analysts have retained their hold rating but increased the price target on Wesfarmers' shares to $42.50 following its announcement. The broker believes the move is a positive and could be reflected in Wesfarmers' share price performance.
Foolish takeaway
I would have to agree with Credit Suisse on this one and think the move is a big positive for shareholders and makes Wesfarmers a much more attractive option than rivals Woolworths Group Ltd (ASX: WOW) and Metcash Limited (ASX: MTS).
