Re-rating running on empty

Research evidence excerpt

Re-rating running on empty

Idea

July 22, 2026 09:11 PM GMT

Morgan Stanley Australia Limited+MAustralia Consumer | Asia Pacific Melinda K Baxter

Equity Analyst

Re-rating running on empty Melinda.Baxter@morganstanley.comMac Ross, CFA +61 2 9770-1176

Mac.Ross@morganstanley.com +61 2 9770-1579

What’s Changed Julia M de Sterke

Wesfarmers Ltd (WES.AX) From To Equity Analyst

Julia.De.Sterke@morganstanley.com +61 2 9770-1658

Price Target A$78.70 A$79.00

Rating Equal-weight Underweight

The discretionary re-rating has run ahead of fundamentals and is

unlikely to prove durable. Reporting season should expose

consumer weakness not yet reflected in consensus expectations.

Australia Consumer

Asia Pacific

Key Takeaways Industry View Cautious

Large-cap consumer screens expensive despite uncertain macro and spending

backdrop.

Recent discretionary re-rating has limited durability, in our view; expect earnings

estimate cuts through results.

Consumer pulse in June remains weak with housing, inflation, and rates weighing

on sentiment.

Downgrade WES to UW from EW. Earnings composition mix shift and stretched

multiple limit re-rating from here.

Prefer staples over discretionary (OW COL and SIG / UW WES and JBH).

Cautious view unchanged: Despite a challenged and uncertain macro and consumer

backdrop, consumer stocks continue to screen expensive, trading +1 SD above mid-

cycle. We downgraded our Consumer industry view to Cautious from In-line in early

June, following capital gains tax and negative gearing changes and the expected drag

on housing activity, wealth effects, sentiment, and discretionary spending. Our

cautious view has not changed and we see de-rating risk as high.

Limited durability to recent re-rating: A rebound in discretionary consumer stocks