Could this signal the next big acquisition for Wesfarmers (ASX:WES)?

The conglomerate could be making another drift into healthcare.

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Key points

  • The Wesfarmers share price is down 5% today
  • There are talks of Wesfarmers setting up a healthcare fund
  • The market has overlooked the company in recent times and shares are down 14% this year to date

The Wesfarmers Ltd (ASX: WES) share price is struggling today and is now trading 5% in the red.

Shares in the conglomerate are trending down today amid reports the group is in the process of hiring new recruits to potentially establish a new healthcare fund.

With the group’s recent acquisition of Australian Pharmaceutical Industries (ASX: API) for circa $760 million, Wesfarmers has already embarked on its first escapade in the sector.

Now many are wondering what might be the group’s next acquisition, and whether there is any link to the recent hiring events and its next moves.

What could be the next acquisition move for Wesfarmers?

Recently the $59 billion company by market cap won the acquisition race to purchase API against rival Woolworths Group Ltd (ASX: WOW).

With the momentum in place, there are talks of Wesfarmers setting up a healthcare fund to potentially target a big fish within the healthcare space.

Now it is understood the company is targeting top executives in the health insurance space to build out its new venture according to reporting from The Australian.

The commentary builds on language from Wesfarmers advising on its plans to build a healthcare platform to invest in following the API acquisition earlier this month.

“API would also provide the basis of a new Healthcare division of Wesfarmers and a platform from which to invest and develop capabilities in the growing health, wellbeing and beauty sector” the group’s Managing Director, Rob Scott said at the time.

The drift into healthcare wouldn’t be a maiden venture for Wesfarmers. It has thought of investing in several healthcare assets over the years and sold off its underwriting business to Insurance Australia Group Ltd (ASX: IAG) back in 2013.

Now with the API acquisition completed, investors are no doubt keen to understand where the company will deploy capital over the coming years.

And with trailing 12 months cash flow of $413 million and net profit of $2.3 billion at the last recording, the company certainly has the credentials to make it happen.

However, the market has overlooked Wesfarmers in recent times, and investors have kept the selling pressure high over these last 6 months.

As such, Wesfarmers (blue line) has underperformed the benchmark S&P/ASX 200 Index (ASX: XJO) substantially over that time, as seen on the chart below.

TradingView Chart

Wesfarmers share price snapshot

In the last 12 months, the Wesfarmers share price has fallen 9% and is now down 15% this year to date.

Across the past month, shares have slipped 15% and are trending behind the benchmark index’s return in that time.

Should you invest $1,000 in Wesfarmers right now?

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended 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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