The Wesfarmers Ltd (ASX: WES) share price has had a mixed start to 2019.
Although the conglomerate's shares have pushed 3.7% since the start of the year, it is underperforming the benchmark ASX 200 which prior to today was up an impressive 7.7% year to date.
Why is it underperforming the ASX 200?
This underperformance is largely down to a disappointing trading update which was released in the middle of last month.
That update revealed that its normally reliable Kmart business had a disappointing first half to FY 2019. Total sales increased just 1% on the prior corresponding period, with comparable store sales falling 0.6%.
Weaker sales in apparel categories, moderating growth in everyday products, and the exit from the low margin DVD category were blamed for the poor performance. The latter previously contributed approximately 1% of sales.
In addition to this, around a week later analysts at Goldman Sachs downgraded the company's shares to neutral with a $32.50 price target.
The broker made the move due to concerns that the short and long term outlook for the Bunnings business was challenging. This is due to unfavourable weather, cyclical trends in the housing sector, and concerns that the Australian hardware market may be saturated.
Should you buy shares?
While I think that Goldman makes a fair point on the Bunnings business, at the current level I still see a lot of value in Wesfarmers' shares.
Especially given the strength of its balance sheet which gives it opportunities to make earnings accretive acquisitions and undertake share buybacks or other capital management initiatives.
Furthermore, the broker expects a dividend of around $1.84 per share to be paid to shareholders in FY 2019. Which means Wesfarmers' currently offers a generous fully franked 5.5% forward yield presently.
All in all, I think this makes it worth considering along with the spun off Coles Group Ltd (ASX: COL) business. I would choose them both ahead of rival Woolworths Group Ltd (ASX: WOW) for valuation reasons.
