Wesfarmers Ltd (ASX: WES) shares are down 0.2% during the lunch hour, currently swapping hands for $48.89 apiece.
This comes amid some wider selling action following a weak lead in US markets. At the time of writing the S&P/ASX 200 Index (ASX: XJO) is down 0.7%.
That's today's price action for you.
Now what's all this about a potential red flag for Wesfarmers shares?
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Is this a red flag for Wesfarmers shares?
Wesfarmers, if you're not familiar, is a diversified company with broad retail operations. Its subsidiaries include top names like Bunnings Warehouse, Kmart Australia, Officeworks, Priceline, along with industrial businesses Coregas and Covalent Lithium.
The red flag in question was raised by UBS and relates to Wesfarmers' Bunnings operations, the company's largest division.
UBS analyst Shaun Cousins said Wesfarmers shares could face some headwinds with sales of outdoor furniture and gardening goods at Bunnings impacted by wet weather.
According to Cousins (courtesy of The Australian):
Reduced Bunnings sales and earnings before tax due to lower revenue per Bunnings store … due to lower DIY revenue – wet weather delaying, and overall reducing, spring sales, plus a more conservative outlook – albeit still above pre COVID due to a better network.
Atop the inclement weather, Wesfarmers shares could be impacted by the impacts of inflation and rising interest rates, much of which are yet to be felt.
"Looking forward, the Australian consumer is facing significant headwinds from the rising cost of living across energy, food, fuel and housing costs, with house prices falling," Cousins said.
However, he added that the company's business setup puts it in a strong position to compete in this environment:
For Wesfarmers, the company is comparatively well positioned for a slower consumer environment, especially in its larger retail businesses Bunnings and Kmart. Each holds a strong value proposition for consumers with a track record of lowering prices / holding back prices in the face of cost inflation.
UBS revised its earnings per share (EPS) guidance for Wesfarmers by 0.8% in 2023 and up 2.8% in 2024.
Don't forget the dividends
Taking a positive view on Wesfarmers shares, in part because of the company's lengthy track record as a reliable dividend payer, is Morgans.
The broker forecasts that Wesfarmers will continue to offer investors reliable, fully franked dividend payouts over the next two years.
Morgans expects Wesfarmers to payout dividends of $1.82 per share in FY23 and $1.89 per share in FY24. At the current share price of $48.89 that equates to a yield of 3.7% in FY23 and 3.9% for FY24.
Morgans has an add rating on Wesfarmers shares with a $55.60 price target, 14% above the current price.
