Owners of Wesfarmers Ltd (ASX: WES) shares have enjoyed a solid profit over the last few years, and the situation may get even better.
A company's earnings are vitally important because investors usually value a business based on its current profit and expected future earnings.
Profit is also important because it pays for the dividend. A growing cash flow enables the dividend to keep rising.
In this article, I'll examine the retail conglomerate's potential profit over the next few years.
FY24 profit forecast
Wesfarmers is performing well despite a high-cost-of-living environment this year thanks to its market-leading retailers, including Bunnings, Kmart and Officeworks.
In the first half of FY24, Wesfarmers's overall revenue increased by 0.5% to $22.67 billion, and the net profit after tax (NPAT) increased 3% to $1.42 billion. This enabled the interim dividend to grow by 3.4% to 91 cents per share.
Broker UBS said Bunnings continued to be resilient, and productivity initiatives helped offset the rising costs of doing business. Kmart benefited from an improved product offering, and availability at lower prices was matched with rising demand from a "trading down consumer".
UBS expects Wesfarmers to deliver a small amount of growth in FY24. The forecast is $43.85 billion of revenue, $2.55 billion of net profit after tax, and a dividend per share of $1.98.
At the current valuation, the Wesfarmers share price is valued at 30x FY24's estimated earnings if it hits that projection.
FY25 earnings projection
UBS thinks the company's lithium efforts are expected to show negative earnings before tax (EBT) until the first half of FY26 because of high production costs during ramp-up and current low spodumene concentrate prices.
Despite that, the broker expected the Bunnings owner to see revenue, profit, and dividend growth again.
Wesfarmers could make $45.6 billion of revenue in FY25, with net profit after tax of $2.7 billion and a dividend per share of $2.08.
The Wesfarmers share price is valued at 28x FY25's estimated earnings.
FY26 profit estimate
In FY26, the lithium earnings could start contributing positively to Wesfarmers, which would be very useful.
UBS expects another increase in its financials in the 2026 financial year. Revenue could rise to $$47.6 million, and the net profit after tax increase to $3 billion. This could enable the dividend per share to grow to $2.34 per share.
The Wesfarmers share price is valued at 25x FY26's estimated earnings if it manages to reach that forecast. It's not exactly cheap, but Wesfarmers continues to show it can deliver profit growth in any environment. This could be good news for shareholder returns.
