What caused the dip in Wesfarmers’ share price?
Wesfarmers continues its downward trend this week with more bad news. Morgan Stanley reported that Wesfarmers’ Kmart and Target stores are likely to suffer when Amazon launches in Australia, noting that Australian department stores are more at risk than specialised retailers.
The investment bank has dropped the share price target from $41 to $36, with investors quickly abandoning the stock as the price slid lower.
While there is no exact date for the Amazon launch, Australian retail stocks have been falling amid speculation throughout the year. Morgan Stanley is predicting a soft launch by the end of this year and a gradual rollout through 2018.
What now for Wesfarmers?
The grim outlook from Morgan Stanley doesn’t bode well for Kmart. Morgan Stanley’s ‘bear case’ of $30 a share puts the value of Kmart back to its 2007 purchase price, with the potential for Coles’ and Bunnings’ earnings to also slide marginally.
Whether Wesfarmers can prepare Kmart and Target for Amazon’s arrival remains to be seen. Either way, Wesfarmers will no doubt be looking to restore investor confidence with a strong full-year report in September.
Ryan Clarkson-Ledward ,
For Markets & Money