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

Is the Wesfarmers Ltd (ASX:WES) share price in the buy zone after the release of its FY 2021 trading update?

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The Wesfarmers Ltd (ASX: WES) share price was a strong performer on Thursday.

The conglomerate’s shares climbed a solid 2.5% to $48.78.

This leaves the Wesfarmers share price trading within a whisker of its record high.

Why did the Wesfarmers share price climb higher?

Investors were buying Wesfarmers shares yesterday following the release of a trading update ahead of its virtual annual general meeting.

That update revealed that the majority of the company’s businesses have delivered strong sales growth so far in FY 2021.

The company’s biggest business – Bunnings – has been a key highlight during the first four months of the new financial year.

The Bunnings business has delivered a 25.2% increase in sales over the prior corresponding period. Management notes that this strong sales growth has driven by both the consumer and commercial segments. Consumer sales remained particularly strong as customers spent more time undertaking projects around the home.

This growth was supported by its Officeworks and Catch businesses. They delivered sales growth of 23.4% and 114.4%, respectively, over the prior corresponding period.

Things were not quite as positive for its Kmart and Target businesses, which have been impacted by government-mandated store closures during the pandemic.

Kmart delivered 3.7% sales growth, whereas Target recorded a 2.2% decline in sales. However, excluding its Melbourne stores, Kmart and Target delivered sales growth of 12.1% and 7.8%, respectively.

Is the Wesfarmers share price in the buy zone?

Unfortunately, it may too late to invest in this one, according to analysts at Goldman Sachs.

In response to this trading update, this morning the broker has held firm with its neutral rating and put a $47.90 price target on the conglomerate’s shares.

While Goldman Sachs expects a strong finish to 2020, it has warned that 2021 uncertainty is increasing.

It explained: “WES continues to be driven by Bunnings given the combination of the scale of the business’ contribution to group EBIT (66% of FY21E EBIT) and the strong sales momentum as the business benefits from the current “stay at home” consumption trends.”

“Looking ahead, the potential for a wet summer and the increasingly positive outlook for a gradual return to normal consumption activities (through better COVID management in Australia and global developments in vaccines) suggests risks to the short term earnings outlook are increasing despite our upgrades to FY21,” it added.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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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