With the Wesfarmers Ltd (ASX: WES) share price currently sitting at around $51.30 I think it's reached the point to sell it.
Ever since the conglomerate announced the plan to split Coles into its own separate entity the share price has impressively gone up nearly 25%. It also announced a number of capital initiatives to add value such as selling its coal assets, selling Kmart Tyre & Auto and ending Bunnings UK & Ireland.
The main question is – do the above moves vindicate a 25% rise in value? I don't think it does.
There's no doubt that executing these moves does add value, particularly at this point in the economic cycle with Australian households looking a bit uncertain.
However, Wesfarmers is not a mid-cap business. It is one of Australia's largest companies.
Once you take all of the divested elements away you are left with Bunnings, Officeworks, Target, Kmart and some industrial businesses.
Arguably in the medium-term Officeworks, Target and Kmart will come under increasing pressure from Amazon and other online competitors. Bunnings is getting a short-term boost from the closure of Masters, but its impressive growth may soon slow down if the Australian house price falls continue. The 'wealth effect' can work negatively as well.
Wesfarmers currently offers an attractive grossed-up dividend yield of 6.2%. Whilst the income is attractive I think that's likely going to be the only returns that investors can make over the next couple of years as the current valuation seems elevated for the future growth on offer.
Foolish takeaway
It's currently trading at 19x FY19's estimated earnings. I think it's better than some blue chips at the current level, but I'd much rather own smaller shares that are growing profit at faster rates.
