In morning trade the Wesfarmers Ltd (ASX: WES) share price is on course to finish the week on a positive note.
At the time of writing the conglomerate's shares are up over 1% to $32.34.
Is it too late to buy Wesfarmers shares?
I don't believe it is too late to pick up Wesfarmers shares and feel they could still run meaningfully higher from here.
Whilst its earnings are more complicated than normal to forecast due to the demerger of Coles Group Ltd (ASX: COL), a note out of the Macquarie Group Ltd (ASX: MQG) equities desk late last year shows that its analysts expect the company to generate earnings per share of $1.74 in FY 2019.
If this proves accurate then it means that Wesfarmers' shares are currently changing hands at approximately 18.5x earnings.
I don't think this is overly expensive for its shares given the solid growth prospects of its Bunnings business and the potential for earnings accretive acquisitions this year.
In fact, the shares of arch rival Woolworths Group Ltd (ASX: WOW) are currently trading at around 22x estimated forward earnings based on Macquarie's forecasts and I see little reason for Wesfarmers shares to trade at such a discount to them.
Analysts at Macquarie appear to agree. They have a $36.51 price target on Wesfarmers shares. This implies potential upside of almost 13% for its share price over the next 12 months or 18% if you factor in its dividend.
I think Macquarie is spot on with its valuation for Wesfarmers and wouldn't be surprised to see its shares re-rate higher in the coming months to a level closer to rival Woolworths.
What about Coles?
As well as Wesfarmers, I think the demerged Coles business is a great option for investors. Especially for income investors in search of fully franked dividends.
Once again, little is known about its plans for its dividend this year following the demerger. But based on Macquarie's forecast for a fully franked full year dividend of 65.7 cents per share in FY 2019, Coles shares potentially provide a forward 5.6% yield.
I think this yield, its defensive qualities, and its relatively cheap share price makes it worth considering today.
