Is the Wesfarmers Ltd (ASX: WES) share price a buy?
The Wesfarmers share price is up 14% over the past six months, but that also includes a 7.5% decline over the past week.
Over the past year Wesfarmers has seriously shifted its business model. Not only did it divest a large portion of its ownership of Coles Group Limited (ASX: COL) but it has been making plays for resource businesses.
It was unsuccessful with its Lynas Corporation Ltd (ASX: LYC) bid, but Kidman Resources Ltd (ASX: KDR) will soon be under the Wesfarmers umbrella. Resources businesses will increase the risk profile of Wesfarmers, but resources could also pleasingly diversify Wesfarmers' earnings base as well.
This week we also learned that Wesfarmers is taking over Catch Group, the owner of Catch.com.au, for $230 million. Plus Bunnings plans to offer an online shopping option across the country by the end of the year. Online retail is going to become more important in time.
I'm liking the transactions that Wesfarmers has actually executed, Lynas was a bit too left-field for me.
However, we also learned that Kmart and Target continue to face tough retail conditions with Kmart Group earnings before interest and tax (EBIT) expected to drop from $631 million in FY18 to between $515 million to $565 million according to Wesfarmers.
I have always said that Wesfarmers needs to shift away from being mostly a bricks and mortar retail conglomerate and it is now strongly pursuing that.
Foolish takeaway
Wesfarmers is trading at just under 20x FY20's estimated earnings with a projected grossed-up dividend yield of 6.1%.
I think Wesfarmers is a quality business and this week's announcements are compelling moves by the business. However, I'm waiting to see how Bunnings is doing in the FY19 report before saying it's a decent price today due to the uncertain outlook for property-related businesses.
