With the Wesfarmers Ltd (ASX: WES) share price falling by more than 11% in the past week due to the current ASX market sell off, is now a good time to snap up some shares?
A strong diversified company
Despite the current market turmoil, Wesfarmers remains a successful, highly diversified business with operations in general retail segments, as well as a number of industrial segments.
Wesfarmers recently reported a relatively solid set of financial results, with a revenue increase of 6% for the half-year, up to $15.25 billion, which was driven by strong sales growth across Kmart, Bunnings and Officeworks. Net profit after tax (NPAT) from continuing operations was $1,127 million, representing a 5.7% increase over the prior corresponding period.
Wesfarmers has a strong balance sheet with a diversified portfolio of cash-generating businesses in market-leading positions. This positions it better than most to ride out any economic difficulties, such as the current one.
Throughout 2019, Wesfarmers made a few acquisitions including a lithium producer, Kidman Resources. Wesfarmers is likely to continue to seek acquisitions in order to further diversify and provide new revenue growth streams.
Bunnings and Officeworks fuel recent growth
The Bunnings business has grown strongly over the past decade, evolving into one of Australia's largest and most successful retailers. Its growth has been particularly strong recently, with 1H 2020 revenue up 5.3% on the prior half to $7,276 million and total store sales growth of 5.8%.
Eight new store locations were opened during the first half of 2020, in addition to 8 store upgrades and expansions. I believe that Bunnings is well-positioned for continued growth over the next year or so, with 13 new stores under construction and 5 upgrades and expansions to be completed. An added bonus is that it longer has market competition from the Masters Home Improvement hardware chain, formerly owned by Woolworths Group Ltd (ASX: WOW).
Kmart Group, which consists of Kmart, Target and online platform Catch, grew its 1H 2020 revenues to $4,990 million, up 7.6% on the prior half. The Catch group has provided Kmart with a more comprehensive e-commerce offering, which puts it in a much better position to compete in an increasingly competitive discount retail market.
Officeworks recorded sales growth of 11.5% on the prior half, with strong growth both in stores and online, while earnings grew 3.9%. However, despite the fact that Officeworks is currently the market leader in its space, it will face growing competition from online giants such as Amazon.
Foolish takeaway
With a 11.66% drop in its share price last week, followed by another 0.60% fall at the time of writing today, I believe that now could be a good time to purchase shares in Wesfarmers at a more favourable price. In addition, Wesfarmers currently pays an attractive fully franked dividend of 3.76%.
Despite the continued market volatility that is quite likely over the next few weeks, I still believe that the long-term outlook of Wesfarmers remains very strong.
