Is the Wesfarmers (ASX:WES) share price in the buy zone after its update?

One leading broker sees value in the Bunnings owner’s shares…

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The Wesfarmers Ltd (ASX: WES) share price was out of form and dropped lower on Thursday following the release of its strategy update.

The conglomerate’s shares ended the day with a 2% decline to $55.11.

Why did the Wesfarmers share price drop?

Investors were selling Wesfarmers shares after it provided an update on current trading conditions at its strategy briefing.

That update revealed that Wesfarmers’ retail businesses have been cycling the impacts of COVID-19 in the prior year from mid-March. This has led to significant volatility in monthly sales growth results.

Wesfarmers also revealed that online sales growth has moderated and that its Catch business has experienced a decline in sales since March.

Is this a buying opportunity?

One leading broker that believes the weakness in the Wesfarmers share price is a buying opportunity is Goldman Sachs.

This morning its analysts retained their buy rating and $59.70 price target on the company’s shares.

Based on the latest Wesfarmers share price, this implies potential upside of 8.5% over the next 12 months excluding dividends. If you include dividends, the potential total return stretches to almost 12%.

Goldman commented: “Wesfarmers hosted its strategy day today outlining the priorities for each division. From the group’s perspective, key priorities have been aligned towards developing a market leading data and digital ecosystem, investing in platforms and accelerating the pace of continuous improvement.”

“Most retail divisions have been trialing supply chain expansions with more details expected to be announced over the upcoming months. This is the clear theme coming out of the WES strategy day: digital investment and supply chain automation increasingly likely to soak up increased amount of management time and capital over the medium term.”

Goldman also notes that Wesfarmers has the balance sheet strength to make acquisitions.

It explained: “Management is looking to rightsize the balance sheet and hopes to do that in a tax effective way. However, a decision has not been made regarding the level or method to do so. The group continues to evaluate acquisition opportunities, although availability of capital has not increased the priority on this front.”

Overall, the broker remains positive on the future and continues to forecast robust profit growth in the years to come.

Goldman estimates earnings per share of $2.18, $2.25, and $2.44, respectively, between FY 2021 and FY 2023.

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James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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