The Wesfarmers Ltd (ASX: WES) share price has gone up by 14% since the end of September. It has been a solid run for the company, so can it keep the run going to Christmas and New Year's Eve?
It has been a volatile year for the company, but the last few months have been helpful for shareholders nursing financial bruises.
December is one of the most important months of the year for Wesfarmers. It has a large portfolio of retail businesses including Bunnings, Kmart, Target, Officeworks, Catch, and Priceline. So, capturing Christmas demand is important for the company.
What's the outlook for Wesfarmers shares?
After a couple of years of booming sales, the business is now facing the task of managing cost pressures resulting from higher inflation.
The company said at its recent annual general meeting that it's seeing elevated supply chain costs, rising wages, and higher utility costs. Together with a lower Australian dollar, this is impacting the company in FY23.
However, the company's businesses are "well placed relative to their competitors to manage costs and will continue to leverage the benefits of scale, sourcing capabilities and employment brand".
Wesfarmers informed investors that retail trading conditions have remained "robust", which could be seen as supportive for the Wesfarmers share price.
The company noted that "Australian consumer demand continues to be supported by low unemployment and high levels of accumulated savings, but rising interest rates and the impact of inflation are starting to affect consumer behaviour".
That sounds somewhat promising for the Christmas trading period for the business.
Wesfarmers also said that "shopping patterns and customer feedback indicate some customers are becoming more price sensitive, as they try to manage household budgets".
Management sees this as an opportunity for its businesses, which are "well known for their everyday low prices, to outperform relative to others in their markets".
Bunnings is seeing "strong demand from commercial customers". Kmart's low price points "position it to meet customer needs and profitably grow its market share in an environment where shoppers are more focused on value".
Target "continues to benefit from good progress in delivering on quality and style at affordable prices".
It noted that Officeworks sales had been broadly in line, year to date, while lower online demand had hurt Catch sales.
The business also noted that the high-performing chemicals, energy and fertilisers division (WesCEF) is still benefiting from strong customer demand and elevated commodity prices.
In summary, Wesfarmers is entering December in a strong position with pleasing recent trading.
Broker ratings
UBS thinks Wesfarmers is a buy, with a price target of $56. That implies a possible rise of around 15% on the current price of $48.59 over the next year. The broker thinks Bunnings and Kmart can perform well in tougher retail conditions.
However, Ord Minnett has a lighten rating, with the pessimism relating to a possible decline in the gross profit margin.
For what it's worth, I'm not sure if Wesfarmers shares can climb much more in the next few weeks to Christmas – who knows what's going to happen? – but I do think Wesfarmers is an excellent ASX blue-chip share to own for the long term, thanks to its quality portfolio and ability to renew it by selling or buying businesses.
In terms of valuation, UBS' numbers put the Wesfarmers share price at 22x FY23's estimated earnings.
