Wesfarmers falls as Morgan Stanley downgrades stock
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The news: Wesfarmers shares lowered on the ASX after Morgan Stanley analysts downgraded their rating on the stock, citing the Perth-based conglomerate's "limited avenues for earnings upgrades".
The numbers: Shares in Wesfarmers dropped 3.6% to $63.91 by 1:50pm AEST. The wider consumer discretionary segment was the sharemarket's worst performing sector, losing 2.34%.
Morgan Stanley analysts downgraded their rating on the Bunnings and Kmart owner from 'equal-weight' to 'underweight' but hiked their price target from $55.30 to $56.20.
They also trimmed their earnings per share estimates by an average of 1.8% for the three financial years to FY26.
The context: The analysts said while Wesfarmers' global and domestic peers have de-rated since March highs, they see elevated risk of underperformance for the group given its high valuation.
They noted that Kmart margins "look to have peaked" in the near term, while top line growth is already factored into consensus estimates.
Likewise, Bunnings revenue could be "overshadowed" by flat margins given the delayed impact of wage increases and a softer market.
The source: Morgan Stanley research
