Should you buy Wesfarmers or Woolworths shares?

The Wesfarmers Ltd (ASX: WES) share price has had a positive start to the week.

In early afternoon trade the conglomerate’s shares have pushed 1.2% higher to $32.47.

Is it too late to buy Wesfarmers shares?

I don’t think it is too late to buy Wesfarmers shares. In fact, I think its shares look great value at current levels.

According to a note out of the Macquarie Group Ltd (ASX: MQG) equities desk late last year, its analysts expect Wesfarmers to achieve earnings per share of $1.74 in FY 2019 following the Coles Group Ltd (ASX: COL) demerger. It has also pencilled in a generous dividend of $1.75 per share, slightly ahead of its earnings per share.

Based on this estimate, Wesfarmers shares are changing hands at a little under 19x earnings and offer a forward fully franked 5.4% dividend yield.

I think this is good value for Wesfarmers, especially in comparison to arch rival Woolworths Group Ltd (ASX: WOW).

Analysts at Macquarie have previously forecast earnings per share of $1.32 for Woolies and a dividend of 92.5 cents per share in FY 2019.

This means its shares are priced at over 22x estimated forward earnings and offer a forward fully franked 3.1% dividend.

While Macquarie’s estimates are not guaranteed to be accurate, they seem reasonable in my opinion and don’t stray too far from the consensus.

In light of this, I would sooner be buying Wesfarmers shares ahead of Woolworths shares at current levels.

Especially given the price target that Macquarie has placed on its shares. Macquarie has tipped them to hit $36.51 this year on the belief that the Bunnings business will remain strong in the face of the cooling housing market.

This price target implies potential upside of over 12% for its share price or over 17% if you include dividends.

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.

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