Wesfarmers versus Woolworths
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Christine St Anne is Morningstar's online editor.
Last week, Wesfarmers (WES) held a strategy day for institutional investors and brokers.
While one fund manager quipped that it was one day in his life he will never get back, the event certainly provided a comprehensive overview of the company's businesses.
Morningstar head of equities research Peter Warnes says the company's strategy day is similar to an annual review of an investment portfolio, and like all investment portfolios, there are winners and losers.
Warnes identified Bunnings as an "outperformer" that was well positioned in the home improvement market, while describing the company's industrial and safety division as a "real winner with significant growth potential yet to be captured".
Warnes was also positive on the news that Coles managing director Ian McLeod had renewed his contract with the group.
Although Coles had achieved "significant positive momentum," Warnes says there is still plenty of scope to improve performance.
However, the not-so-good performer was Target. As Warnes says, it seems like the successful revival of Kmart has come at a certain cost to Target.
A number of analysts issued slight downgrades on Wesfarmers following the investment strategy day.
Fund manager Bruce Smith says the downgrades were more of a response to the fact Wesfarmers is operating in a two-speed economy.
Smith, who is the principal portfolio manager for Alphinity, says the company's diversified businesses - two-thirds retail and one-third resources - is exposed to different parts of the two-speed economy.
As expected, its businesses in the resources and materials sector have performed well, but its retail businesses remain under pressure.
Analysts remain concerned about how Wesfarmers' businesses like Coles will respond to changing consumer spending patterns, as many households look to maintain their savings at the expense of spending.
It is a challenge facing other companies, such Wesfarmers' arch-rival Woolworths (WOW).