Wesfarmers Ltd (ASX:WES) share price plummets 30% as spinoff Coles hits the ASX boards

The Coles Group Limited (ASX: COL) share price has hit the ASX boards this morning and is currently priced at $12.58

Analysts had been tipping a price of $13.00 to $14.00 for the supermarket giant’s shares, so investors will be reasonably pleased with this outcome given the market selloff today.

Going the other way this morning is of course the Wesfarmers Ltd (ASX: WES) share price. It is down a massive 30% in early trade after investors revalued its shares to reflect the absence of the Coles business.

Once again, I think this is a decent outcome for shareholders. I estimate that this has wiped almost $15 billion off the Wesfarmers market capitalisation today, whereas the Coles market capitalisation currently stands at ~$16.8 billion.

Should you invest in either business?

Wesfarmers’ performance will now be largely reliant on the success of its Bunnings business. While I’ve been pleased with what I’ve seen from Bunnings and think it is one of the highest quality retailers in Australia, it will be interesting to see how it fares during the housing market slowdown.

Some believe it will be negatively impacted by the housing market weakness, whereas others have predicted that it will benefit as consumers focus less on buying and selling houses and more on renovating them.

In addition to this, all eyes are on what Wesfarmers does next. The company has money to spend and this could have a major impact on investor sentiment.

Fletcher Building Limited (ASX: FBU) has been tipped as a potential target in the past. So, with its shares crashing to a 52-week low today, perhaps it will be on the company’s radar again.

What about Coles?

I like Coles and believe it could be a good option for investors looking at low risk and stable options. However, it might be worth waiting to see how the supermarket performs over the all-important Christmas period before considering an investment.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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 Scott Phillips.

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