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Bunnings just made an acquisition, is the Wesfarmers share price a buy?

Bunnings has just made an acquisition, does that make the Wesfarmers Ltd (ASX: WES) share price a buy?

According to reporting by the Australian Financial Review, Australia’s leading hardware business has taken over Adelaide Tools as a way to expand in the specialist tool sector.

Adelaide Tools has five retail stores in Adelaide and also runs Oaklands Mower Centre. Some of the things it sells are things like drills, circular saws, orbital sanders and air compressors.

Bunnings wants to service more of the tradesman market. The AFR quoted Bunnings managing director Mike Schneider “The business will continue to operate as Adelaide Tools and will give Bunnings insight into the dynamics of the trade specialist market”.

This acquisition clearly isn’t material to Wesfarmers or even to Bunnings. But it could be a sign of things to come. It may mean more of Bunnings is dedicated to service trades people or there could be other tools-based acquisitions to come from Bunnings.  

Bunnings is already an excellent business, it might be one of the very best retail businesses in the whole of Australia. It makes a lot of sense to go into specialist tools because there are clear existing synergies with the rest of Bunnings’ offering.

Foolish takeaway

Wesfarmers is trading at 23x FY20’s estimated earnings with a projected forward grossed-up dividend yield of 5.3%. Wesfarmers is one of my preferred blue chips, but I think there are even better options for long-term dividends.

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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. 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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