WES – UBS rates the stock as Downgrade to Sell from Neutral

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Wesfarmers’ result was not as strong as it appeared on the headline, given various one-offs, and underlying earnings only exceeded UBS’ forecast slightly. Bunnings missed the mark and Kmart and industrials earnings declined.

Cash conversion was the bright spot, the broker notes, providing for a special dividend, and Officeworks outperformed.

UBS has made little change to forecasts but suggests a 20x FY20 earnings multiple is too rich in the face of slowing consumer spending, the impact of a weak housing market on Bunnings, and a competitive environment. Downgrade to Sell from Neutral. Target rises to $32.60 from $30.75.

Sector: Food & Staples Retailing.

Target price is $32.60.Current Price is $34.97. Difference: ($2.37) – (brackets indicate current price is over target). If WES meets the UBS target it will return approximately -7% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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