One of the worst performers on ASX 200 during the last few weeks has been the Wesfarmers Ltd (ASX: WES) share price.
The conglomerate's shares have fallen 32% since the start of November largely to account for the demerger of the Coles Group Ltd (ASX: COL) business.
One broker that thinks that Wesfarmers' shares have fallen too far is Goldman Sachs.
According to a note out of the investment bank this morning, its analysts have retained their buy rating and increased the price target on its shares to $34.90.
This price target implies potential upside of almost 12% for its shares over the next 12 months, excluding dividends.
Why is Goldman bullish on Wesfarmers?
The broker lifted its price target to reflect the completion of the sale of its 40% stake in Bengalla to New Hope Corporation Limited (ASX: NHC) on Monday. The stake has been sold for $860 million, with Goldman estimating the profit on sale to be approximately $670 million.
In the absence of value-accretive transactions, the broker believes that management would be open to returning excess capital to shareholders.
It has suggested that there could be room for up to $3.6 billion in FY 2020 for any capital management purposes. This translates to a possible buyback opportunity of upwards of 9.1% of its capital, which would be 9.8% accretive to earnings per share that year.
Should you invest?
Based on Goldman's forecast for earnings per share of $2.13 in FY 2019, Wesfarmers' shares are currently changing hands at a touch under 15x forward earnings today.
I think this is a fair price to pay to own its shares given its current growth profile, especially considering its capital management potential in FY 2020.
Though, at current levels I would probably choose the demerged Coles' business ahead of Wesfarmers if I had to choose just one of them.
