Why Citi has a sell rating on the Wesfarmers (ASX:WES) share price

Are Wesfarmers shares a sell?

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The Wesfarmers Ltd (ASX: WES) share price has been a solid performer this year.

Since the start of the year, the conglomerate’s shares have risen just over 11% to $57.31.

Where next for the Wesfarmers share price?

Unfortunately for shareholders, one leading broker believes the Wesfarmers share price is overvalued now.

According to a note out of Citi, its analysts have retained their sell rating and $49.00 price target on the company’s shares.

Based on the current Wesfarmers share price, this implies potential downside of 14.5% over the next 12 months.

What did the broker say?

Citi notes that the company released an update at its annual general meeting last week.

In response to the release, the broker saw no reason to change its rating on the Wesfarmers share price, believing it is overvalued at the current level.

Citi commented: “While no quantitative trading update has been provided, AGM commentary on how the businesses are performing was similar to that provided at the FY21 result and therefore there were no real surprises.”

“Online is naturally lifting to partially offset the loss of sales from store closures. Bunnings has also seen strong commercial sales, but combined with online has not fully offset the impact of store closures. Kmart and Target were most impacted by store closures while Officeworks continues to benefit from customer demand for technology and furniture, though is margins dilutive.”

“The non-retail businesses appear to be performing well with Wesfarmers noting strong demand for ammonium nitrate and favourable LPG pricing. We make no changes to our earnings estimates and maintain our Sell rating on the basis of valuation with a $49.00 target price,” the broker concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks 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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