May 2022 saw the Wesfarmers Ltd (ASX: WES) share price go backwards. Could June 2022 be better for the business?
Wesfarmers is one of the biggest businesses in Australia. It operates a number of well-recognised Australian retailers including Bunnings, Officeworks, Kmart, Catch and Target.
The latest we’ve heard from the business was from a strategy briefing day.
Wesfarmers re-iterated to investors that its primary objective is to provide a satisfactory return to shareholders. There are a number of areas that it’s focusing on to make those returns happen.
One of those factors is “anticipating the needs of our customers and delivering competitive goods and services.” Another is “looking after our team members and providing a safe, fulfilling work environment.” A third one was “taking care of the environment”.
Wesfarmers is currently working on its data and digital ecosystem. It established ‘OneDigital’ in the second half of FY22 and extended the benefits of the OnePass membership program to Kmart and Target.
It has strengthened its e-commerce capabilities, while Bunnings and Officeworks have partnered with Flybuys.
The company also said that it’s developing platforms for long-term growth.
It’s putting money into developing the Mt Holland lithium project.
Wesfarmers has established a health division after acquiring Australian Pharmaceutical Industries.
It is exploring capacity expansion and adjacent industry opportunities within WesCEF (chemicals, energy and fertilisers). Those opportunities it’s looking at include ammonia and sodium cyanide plants, as well as clean energy projects.
Management is also working on the continued development of Bunnings, including Tool Kit Depot and Beaumont Tiles. Bunnings is a large contributor to the Wesfarmers profit and therefore the Wesfarmers share price.
The ASX share also noted that it’s looking to accelerate the pace of its continuous improvement.
Areas of focus include improving supply chain capabilities, increasing resilience and operational agility, optimising store networks, focusing on sustainability and supporting team members and the community.
Investors like to focus on the potential outlook, so investors may be taking that into account with the Wesfarmers share price.
The company noted that market conditions remain uncertain and “challenging”. There have been continued COVID-related disruptions to the global supply chain and labour availability in some states. It also noted inflationary impacts, though the business wants to be a price leader for customers.
Wesfarmers says that it’s focused on building market share and integrating sustainable practices to ensure long-term profitability.
Expert ratings on the Wesfarmers share price
Opinions are quite mixed on the business.
On the one hand, there is a broker like Morgans with a buy rating on Wesfarmers and a price target of $58.40. That suggests a possible rise of more than 20% over the next 12 months.
Then there’s Citi which rates Wesfarmers as a sell, with a price target of just $42. One of the reasons for the cautiousness is that Bunnings could face earnings difficulties as house prices decline.
However, while these ratings are opposite, the profit estimates are quite similar. Citi thinks the Wesfarmers share price is valued at 24 times FY22’s estimated earnings with a projected grossed-up dividend yield of 5.4%.