The Wesfarmers Ltd (ASX: WES) share price looks set to finish the week with a day in the red.
In early afternoon trade the conglomerate's shares are down a touch over 1% to $35.83. This decline brings their two-day decline to just over 6%.
Why is the Wesfarmers share price down 6% in two days?
Wesfarmers shares have come under pressure this week following the release of a trading update for its Kmart Group business on Thursday.
That update revealed that both its Kmart and Target businesses have been underperforming expectations in the second half due to market conditions remaining very competitive with increased price investment and higher levels of promotional activity.
In addition to this, management advised that cautious consumer sentiment is placing pressure on its businesses and many other industry participants.
As a result, earnings before interest and tax from continuing operations for the Kmart Group business is now expected to be between $515 million and $565 million in FY 2019. This will be a decline of 10.5% to 18.4% on the $631 million achieved in FY 2018.
Goldman Sachs downgrades Wesfarmers.
One broker that wasn't overly impressed with this update was Goldman Sachs. According to a note out of the investment bank this morning, its analysts have downgraded Wesfarmers' shares from a neutral rating to a sell rating.
The broker has also reduced its price target on the company's shares from $32.70 to $30.50.
Goldman believes that following the de-merger of the Coles Group Ltd (ASX: COL) business, "there is an emerging concern that WES' well regarded focus on returns has led to an under-investment in the core business infrastructure and capabilities at a time of rapid change in competition (we note that peers of Bunnings have to undergo investments to tackle online sales). Given the breadth of common strategies being implemented and headwinds to be addressed across the WES portfolio, we are concerned a higher portion of the company's cash flow will need to be diverted to capex in order to fill the gaps."
In light of this and its opinion that its valuation remains stretched, the broker decided to downgrade its shares to a sell rating.
One company that Goldman is bullish on is Afterpay Touch Group Ltd (ASX: APT). This morning the broker retained its conviction buy rating and $27.10 price target on the payments company's shares despite AUSTRAC ordering an audit.
