Is the Wesfarmers share price in the buy zone?

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.

Top 3 ASX Blue Chips To Buy For 2019

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked…

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of The Motley Fool’s Top 3 Blue Chip Stocks for 2019.

Each one pays a fully franked dividend. The names of these Top 3 ASX Blue Chips are included in a specially prepared FREE report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

See the 3 blue chip stocks

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. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.