Is the Wesfarmers Ltd (ASX: WES) share price a buy?
The Wesfarmers share price has drifted lower since the initial positive reaction to the company's FY19 result release which included a final dividend of $0.78 per share on top of all the other dividends declared during the year.
Of course, without Coles Group Limited (ASX: COL) it's a smaller business and the ordinary dividend will be lower for the time being until its other earnings have grown.
But it was a mixed result from the various Wesfarmers segments in FY19. In earnings before interest and tax (EBIT) terms, Bunnings EBIT rose by 8.1% to $1.63 billion and represents over half of Wesfarmers' earnings, Kmart EBIT dropped 13.7% to $540 million, the Industrials EBIT increased 4.4% to $519 million and Officeworks EBIT increased by 7.1% to $167 million.
But that's the past now. What matters is FY20 and beyond.
I like that Wesfarmers is taking actions to improve its retail operations by growing its online sales. Shoppers can now buy items from Bunnings online and the acquisition of Catch Group recently should help the online capabilities of Kmart Group.
It's also an interesting move that Wesfarmers is on course to acquire Kidman Resources Ltd (ASX: KDR). Lithium doesn't seem like an obvious acquisition, but there are potential synergies with its industrial business and it certainly diversifies earnings.
Interestingly, Wesfarmers said that it is still looking at transactions that create value for shareholders over the long-term. This may refer to even more acquisitions and/or it may mean divesting existing businesses – Wesfarmers was close to selling Officeworks recently.
Foolish takeaway
Retail is a tough industry, but Wesfarmers has continued to do well – particularly with Bunnings. Wesfarmers is now trading at 22x FY20's estimated earnings with a projected grossed-up dividend yield of 5.5%.
Wesfarmers is a solid blue chip which I wouldn't mind having in my portfolio, but I think there could be better priced opportunities for the expected growth over the next few years.
