Is the FY25 outlook compelling for Wesfarmers shares?

Should owners of Wesfarmers shares be optimistic about the future?

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Wesfarmers Ltd (ASX: WES) shares have convincingly beaten the market in 2024 to date, with an increase of 14%, while the S&P/ASX 200 Index (ASX: XJO) has only gone up by 1%. Based on some forecasts, the company may also be able to look forward to a good FY25.

The owner of Bunnings, Kmart and Officeworks has managed to succeed in this inflationary environment this year so far. But, what's next?

Let's look at both what the company has said in recent times about its outlook and what analysts estimate could happen in the 2025 financial year.

Outlook for the divisional operations

The last update from Wesfarmers was the 2024 strategy briefing day. The ASX share said it's "well positioned to deliver strong growth and returns over the long-term."

The company said it has businesses with attractive growth opportunities, growing addressable markets, new product and service offerings, and network and population growth. Its retailers are well-positioned for demand growth from demographic changes, and they have opportunities for productivity and efficiency benefits.

Looking at Bunnings, the core profit generator and key division for Wesfarmers shares, the ASX share said the hardware business is focused on "driving sustainable earnings growth over the long term in both consumer and commercial segments and across in-store and online channels". The ASX retail share revealed Bunnings' value credentials are resonating with "increasingly value-conscious customers".

Wesfarmers noted that population growth and housing demand remain "positive macroeconomic drivers" for Bunnings. It also said that it continues to "invest in new and expanded ranges, optimising space, supply chain and accelerating data and technology to improve the customer offer and maintain a low-cost model".

With Kmart, Wesfarmers said progress on a consistent strategic agenda has allowed the discount retailer to continue growing its market share of customers' wallets. The company said the strength of its "world-class Anko product development capability is a key competitive advantage."

The company is working on growing Kmart's addressable market in Australia by expanding into new categories and extending existing categories. Kmart is also looking to explore "new and profitable channels by expanding Anko into new markets globally through tailored business models."

Officeworks is delivering profitable growth by "meeting the changing needs of customers as they work, learn, create and connect". It is also working on offering a wider range, accelerating its growth with businesses, leveraging its data and loyalty programs, and expanding the store network. Officeworks is also working on productivity and efficiency improvements.

Finally, with the Wesfarmers chemical, energy and fertiliser (WesCEF) business, it's investing to improve efficiency and progressing production capacity expansions to facilitate long-term growth. The company is working to secure competitively priced natural gas amid a forecast supply deficit.

WesCEF is advancing the Covalent lithium project. The refinery construction recently hit the 75% completion milestone, and the focus is shifting to commissioning activities. Lithium hydroxide production is expected in the first half of the 2025 calendar year.

Analyst forecasts for Wesfarmers shares

The broker UBS has forecast that Wesfarmers can generate $46.2 billion of revenue in FY25, up from the forecast of $44 billion in FY24.

UBS also predicts Wesfarmers can generate $2.77 billion of net profit after tax (NPAT) in FY25, up from $2.56 billion in FY24. This translates into potential earnings per share (EPS) of $2.70, putting the current Wesfarmers share price at 24x FY25's estimated earnings.

The broker has suggested Wesfarmers could pay an annual dividend per share of $2.16 in FY24.

UBS has a price target of $66 on Wesfarmers shares, which implies a possible rise of 1% over the next 12 months.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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