Is the Wesfarmers share price a buy?

Is the Wesfarmers Ltd (ASX:WES) share price a buy?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is the Wesfarmers Ltd (ASX: WES) share price a buy?

The retail giant recently declared a $1 ordinary dividend per share and a $1 special dividend per share, although the company has already gone ex-dividend so if you wanted to receive the cash you have already missed out.

However, the recent FY19 half-year result shows continuing operations net profit after tax (NPAT) growth of 10.4% to $10.8 billion.

Looking at the key segment of Wesfarmers, being Bunnings Australia and New Zealand, revenue grew by 5.2% to $6.9 billion and its earnings before interest and tax (EBIT) grew by 7.9% to $932 million. This goes to show that Bunnings continues to benefit from growing scale. However, Managing Director Rob Scott said that there was a moderation of trading conditions.

But, the previous growth machine of Kmart (with Target) is stalling – revenue only grew by 0.8% to $4.64 billion and EBIT dropped 3.8% to $383 million with weaker sales in apparel, lower growth in non-seasonal products and increased store & supply chain expenses.

Impressively, Officeworks' revenue increased 8.2% to $1.1 billion and EBIT grew 11.8% to $76 million.

Although the Kmart Group is slowing, I think it shows the benefits of having several different businesses than can each drive growth at different times.

Is Wesfarmers a buy?

On the one hand I am wary of investing in Wesfarmers shares because of the growing Amazon presence, which has devastated quite a few retail businesses in the US. Of course, Wesfarmers can grow its own online sales, so it's not all bad and perhaps the negativity is overdone.

But, I have long been impressed with Wesfarmers' focus on shareholder returns. By ultimately focusing on shareholder returns it's more likely that Wesfarmers will deliver on that objective.

It's hard to say what the sustainable dividend payment level will be, but I imagine Wesfarmers will want to maintain a good level of dividends over the long-term. If Wesfarmers expands into non-retail sectors then it could become more of a buy to me, it's currently trading at around 15x FY19's estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Defensive Shares

Men standing together and defending the goal post symbolising defensive shares.
Defensive Shares

4 defensive ASX shares to own in a greedy market: Macquarie

These experts reckon the ASX's record highs won't last...

Read more »

Two mature women learn karate for self defence.
Defensive Shares

2 defensive ASX income shares I think investors should consider buying for bumper returns!

These stocks could offer defence and good returns.

Read more »

Defensive Shares

The pros and cons of buying Telstra shares right now

Is this an opportunity calling?

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Defensive Shares

My 2 favourite ASX utility shares for January 2024

These stocks could provide a good mixture of defence and growth.

Read more »

safe dividend yield represented by a piggy bank wrapped in bubble wrap
Defensive Shares

Weathering market storms: Dividend stocks in Australia as a safe harbour

Defensive earnings could help provide stability.

Read more »

safe dividend yield represented by a piggy bank wrapped in bubble wrap
Defensive Shares

Here's my recommendation for safe ASX shares to buy in December 2023

I think these stocks could be two leading defensive picks.

Read more »

Men standing together and defending the goal post symbolising defensive shares.
Defensive Shares

5 top defensive ASX shares for turbulent times

These stocks could be long-term defensive winners.

Read more »

a child dressed in army fatigues lies on the ground in his backyard wearing leaves and branches on his head as camouflage and peering through a pair of binoculars in a soldier pose.
Defensive Shares

Searching for defensive ASX shares? Here's what I look out for

Not all defensive companies make for good investments.

Read more »