Wesfarmers share price tumbles on broker downgrade

Wesfarmers shares are having a difficult day…

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Key points

  • The Wesfarmers share price is trading lower on Tuesday
  • A bearish broker note appears to be behind this decline
  • Ord Minnett has downgraded Wesfarmers and a host of other retail shares

The Wesfarmers Ltd (ASX: WES) share price is out of form on Tuesday.

In afternoon trade, the conglomerate’s shares are down 3% to $42.80.

Why is the Wesfarmers share price falling today?

The weakness in the Wesfarmers share price today appears to have been caused by a broker note out of Ord Minnett this morning.

According to the note, the broker has downgraded Wesfarmers and a host of other retail shares amid concerns over the current consumer environment.

In respect to Wesfarmers, Ord Minnett has downgraded its shares to a lighten rating from hold and cut its price target on them by over 20% to $41.20. Based on the current Wesfarmers share price, this implies further potential downside of approximately 4% for investors.

Ord Minnett has reduced its earnings estimates for Australian retailers through to FY 2024 to reflect tougher operating conditions than previously expected.

Other retailers that are being hit by downgrades include the following:

  • Coles Group Ltd (ASX: COL) shares to lighten with a $17.00 price target
  • JB Hi-Fi Limited (ASX: JBH) shares to hold rating with a $42.00 price target
  • Woolworths Group Ltd (ASX: WOW) shares to hold with a $35.40 price target

What are other brokers saying about Wesfarmers?

Analysts at Morgans are a lot more positive on the Wesfarmers share price. Earlier this month, the broker put an add rating and $58.40 price target on the company’s shares.

Its analysts note that management appears confident that it can navigate the tough consumer environment.

Morgans commented:

With cost-of-living pressures increasing, management was confident in WES’s ability to navigate through a more cautious consumer environment given the retail businesses offer a strong value proposition underpinned by scale benefits, product innovation and supply chain efficiencies.

With value expected to become increasingly important, we think Kmart is well-placed to benefit with the average price of an item at around $6-7. Even if price rises are needed to mitigate cost inflation, this will be small on an absolute basis (eg, a 5% increase in average selling price = ~35c) and Kmart can use its scale and supply chain flexibility to limit increases vs its competitors.

Time will tell which broker makes the right call.

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 has positions in and has recommended COLESGROUP DEF SET and Wesfarmers Limited. 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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