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Is the Wesfarmers share price a buy?

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

Wesfarmers has been one of the high-quality ASX blue chips for a long time. It has been operating for over a century and is now a major retail conglomerate with its Bunnings, Officeworks, Kmart and Target businesses.

It has made a lot of large moves over the past few years. It expanded into and then exited the UK home improvement market with Bunnings UK & Ireland. Wesfarmers has divested a lot of coal assets, Coles Group Limited (ASX: COL) and Kmart Tyre and Auto.

To reflect the high amount of cash it generated from the sales, Wesfarmers recently declared a $1 per share special dividend, which was great for shareholders.

However, I do question what Wesfarmers will do without the potential UK expansion growth or Coles. Is retail enough to carry Wesfarmers forwards for the foreseeable future?

I’m not sure it is. Growing online competition from Amazon and Kogan.Com Ltd (ASX: KGN) could see Wesfarmers’ profit margins become challenged over time.

In the recent half-year result we saw Kmart & Target earnings before interest and tax (EBIT) fall. Will the negative wealth effect of falling house prices hurt Bunnings? I am actually somewhat surprised Bunnings’ growth hasn’t been stronger with Masters shutting. Where did all of Masters’ customers go?

Wesfarmers management have made noises about making acquisitions, but except for initial rumours about Healthscope Ltd (ASX: HSO) or Fletcher Building Limited (ASX: FBU) being potential targets, I haven’t seen any other potential deals. I believe Wesfarmers needs to look outside of the retail space.

Foolish takeaway

Wesfarmers is trading at 15x FY19’s estimated earnings, this is a fairly attractive price for the company, but I would prefer to see if the slowdown has stopped before buying shares.

Wesfarmers is a decent dividend share, but these top ASX income stocks could be even better picks.

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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. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool Australia has recommended Kogan.com ltd. 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.

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