Why this broker thinks the Wesfarmers (ASX:WES) share price can go higher

The Wesfarmers Ltd (ASX: WES) share price hit an all-time record high this week. But this broker thinks it can push higher.

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It has been an extraordinary year for the Wesfarmers Ltd (ASX: WES) share price after it hit a record, all-time high of $51.64 this week. This brings its year-to-date returns to over 23%, with a dividend yield of approximately 3%. While the Wesfarmers share price might be sitting at record all-time highs, this broker thinks it can push higher. 

Broker raises Wesfarmers share price target 

Credit Suisse Group has this week raised its price target for Wesfarmers shares from $51.59 to $55.83 while retaining its outperform rating. The broker believes the Officeworks business stands to benefit from the work from home trend continuing and feels Bunnings also remains in a solid position. 

Economic data to support retail spending 

In the minutes of the Reserve Bank of Australia’s (RBA) December monetary policy meeting, the board noted that the domestic economic recovery had established reasonable momentum, aided by the lifting of restrictions in Victoria. Expectations for GDP growth in the September and December quarters had been upgraded over the preceding month, and employment had also recovered faster than anticipated. 

In reviewing recent data, the members noted that household consumption had rebounded strongly, and was assisted by a bounce-back in spending in Victoria. Indicators such as retail trade, new car sales and payments information indicated that the recovery in consumption would continue in the December quarter, supported by high household savings. 

Wesfarmers trading update 

The Wesfarmers trading update released last month reiterates the continued strength of the retail sector. The company experienced continued significant demand for its Bunnings, Officeworks and Catch businesses following the strong results reported in the second half of 2020. Wesfarmers Managing Director Rob Scott said the trading restrictions in Melbourne caused significant pent up demand, resulting in very strong trading performance across stores in Melbourne when they re-opened on 28 October. 

For Bunnings, strong sales growth has continued for both consumer and commercial segments. Excluding metropolitan Melbourne sales, total sales growth of 29.3% was recorded year to date. In the company’s FY20 results, Bunnings contributed 48.8% to the group’s revenue. 

Excluding metropolitan Melbourne stores, Kmart and Target have achieved total sales growth of 12.1% and 6.7% respectively for the year to date. The Kmart group contributed 29.8% of the group’s revenue for FY20. 

For Officeworks, sales growth has been supported by the strong demand for technology and home office furniture products. Excluding metropolitan Melbourne stores, total sales growth of 27.3% was recorded for the year to date. Officeworks contributes a lessor amount to the group’s earnings, sitting at just 9% for FY20. 

At the time of writing, the Wesfarmers share price is trading at $51.31, up 0.37% for the day so far. 

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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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