When i first started on the ASX 3 years ago, WES was $40, for Huntley is was a "best business" and WES paid out big dividends and even capital returns.
But now it bought Coles over valued, its dividends are not so high and it is loaded with debt, preventing those periodic capital returns.
If brief, with Coles, WES departed from its value acquisitions principles and has been punished accordingly.
EPS will fall in 2010.
WES WESFARMERS LIMITED Food and Staples Retailing Overnight Price: $25.40 BA-Merrill Lynch rates WES as Underperform - The net profit result came in higher than the broker expected and it upgrades its FY10 net profit forecasts by 11% in response. However, Coles Food and Liquor didn't perform in-line with the market's expectations and Merrills notes that rightly or wrongly, most of the focus was on Coles. But Merrills believes this isn't exactly fair and says the expectations were pretty unrealistic anyway.
On its numbers, Coles did OK and sales growth was actually pretty good, while the performances from Target and Kmart were both "outstanding".
The only problem the broker seems to have is that based on a 7% return on equity, which it thinks will probably slip in FY10, the stock just isn't worth $25.40. That sees the Underperform call maintained.
Target price is $21.00 Current Price is $25.40 Difference:($4.40) - (brackets indicate current price is over target). If WES meets the BA-Merrill Lynch target it will return approximately - 17% (excluding dividends, fees and charges - negative figures indicate an expected loss).
The company's fiscal year ends in June. BA-Merrill Lynch forecasts a full year FY10 dividend of 106.00 cents and EPS of 106.00 cents. At the last closing share price the estimated dividend yield is 4.17%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 23.96.
Citi rates WES as Buy, Medium Risk - The broker's first pass on the Wesfarmers result shows earnings below expectation but profit ahead based on favourable tax. The good news is that the sales trend is improving at Coles but the bad news is margins are yet to catch up. The broker notes the market is already pricing in expected margin improvement over the next couple of years but retains Buy.
Forecast changes to follow.
Target price is $24.80 Current Price is $25.40 Difference:($0.60) - (brackets indicate current price is over target). If WES meets the Citi target it will return approximately - 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).
The company's fiscal year ends in June. Citi forecasts a full year FY10 dividend of 100.00 cents and EPS of 124.40 cents. At the last closing share price the estimated dividend yield is 3.94%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 20.42.
Deutsche Bank rates WES as Buy - It always boggles the mind when the market "expects an upside surprise". Flawed logic for mine. But that's exactly what the broker reckons was the case when Wesfarmers reported a result merely in line and not better. Hence the share price drop. The broker dismisses such impatience, and points to Coles' best quarterly comparable sales numbers since 2000 as a reason to retain Buy.
Target price is $30.10 Current Price is $25.40 Difference:$4.70 - (brackets indicate current price is over target). If WES meets the Deutsche Bank target it will return approximately 19% (excluding dividends, fees and charges - negative figures indicate an expected loss).
The company's fiscal year ends in June. Deutsche Bank forecasts a full year FY10 dividend of 110.00 cents and EPS of 135.00 cents. At the last closing share price the estimated dividend yield is 4.33%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 18.81.
AddedMacquarie rates WES as Outperform - The FY09 result leaves the broker thinking that Coles is a legitimate recovery story, that Target has is the category leader with resilient earnings and Bunnings is a high-growth, if immature, retailer. With Macquarie believing that the business cycle and commodity price cycles are looking like they'll be more favourable in FY10, the broker maintains its Buy call.
Target price is $28.25 Current Price is $25.40 Difference:$2.85 - (brackets indicate current price is over target). If WES meets the Macquarie target it will return approximately 11% (excluding dividends, fees and charges - negative figures indicate an expected loss).
The company's fiscal year ends in June. Macquarie forecasts a full year FY10 dividend of 90.00 cents and EPS of 134.60 cents. At the last closing share price the estimated dividend yield is 3.54%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 18.87.
RBS Australia rates WES as Hold - Target $25.00 (was $21.50). Full year earnings broadly matched the broker's forecast and post the result it makes only minor changes to its numbers. How sustainable and how quickly any Coles turnaround is and whether the company can reduce costs in its resources operations remain the key stock drivers in the broker's view but it suggests the share price already incorporates some good news in this regard and so it retains its Hold rating.
Target price is $25.00 Current Price is $25.40 Difference:($0.40) - (brackets indicate current price is over target). If WES meets the RBS Australia target it will return approximately - 2% (excluding dividends, fees and charges - negative figures indicate an expected loss).
The company's fiscal year ends in June. RBS Australia forecasts a full year FY10 dividend of 110.00 cents and EPS of 121.50 cents. At the last closing share price the estimated dividend yield is 4.33%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 20.91.
UBS rates WES as Neutral - The result was a mixed bag, the analysts say, with FY10 earnings forecasts have been increased by 3.2% and FY11 by 1.5% due to better than expected margin and sales momentum, UBS says. However, the stock is seen as fully valued, but UBS says the turnaround is starting to look attractive.
Target rises $3.00 to $24.70.
Target price is $24.70 Current Price is $25.40 Difference:($0.70) - (brackets indicate current price is over target). If WES meets the UBS target it will return approximately - 3% (excluding dividends, fees and charges - negative figures indicate an expected loss).
The company's fiscal year ends in June. UBS forecasts a full year FY10 dividend of 104.00 cents and EPS of 136.00 cents. At the last closing share price the estimated dividend yield is 4.09%. At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 18.68.
Market Sentiment: 0.0
WES Price at posting:
$24.80 Sentiment: None Disclosure: Not Held
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