The Wesfarmers Ltd (ASX: WES) share price has been caught up in the selloff on Thursday and is dropping notably lower.
At the time of writing the conglomerate’s shares are down 3.5% to $42.30.
Is the Wesfarmers share price in the buy zone?
I think this pullback could be a buying opportunity for investors looking for strong blue chip shares to buy for the long term.
Thanks to its collection of quality businesses such as Bunnings, Kmart, and Officeworks, I believe Wesfarmers is well-positioned to achieve solid earnings and dividend growth over the next decade.
Another positive is the hefty cash balance the company is sitting on following the sale of part of its stake in supermarket giant Coles Group Ltd (ASX: COL). I expect these funds to be used to make earnings accretive acquisitions in the near future.
Overall, I think this puts the Wesfarmers share price is in the buy zone right now. Though, not everyone is as positive on the company as I am.
A note out of Goldman Sachs this week reveals that its analysts have placed a neutral rating and $42.50 price target on the company’s shares.
Why is Goldman lukewarm on Wesfarmers?
The broker explained that its neutral rating is due to valuation reasons.
Using a sum of the parts and discounted cash flow valuation model, it sees $42.50 as fair value for its shares. This means there is limited upside for investors over the next 12 months, even if you include dividends.
Though, it does see a number upside risks that could lead to a positive revision to its valuation. These include improvements in consumer sentiment around discretionary purchases, a faster turnaround of the struggling Target business, value accretive acquisitions, capital management, and favourable rental negotiations.
However, until these potential factors become a reality, Goldman is sticking with its neutral rating.
Instead, it prefers Harvey Norman Holdings Limited (ASX: HVN) in the retail sector. This morning it put a buy rating and $4.05 price target on its shares.
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More reading
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- Not keen on Westpac? Then buy these top ASX dividend shares instead
- Can the Wesfarmers share price continue to rise after its market update today?
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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