Wesfarmers Ltd (ASX: WES) is a high-quality operator, but with shares at $83, Macquarie sees greater upside in two other ASX stocks.
It's been a tough few years for Australian consumers with cost-of-living pressures firmly in focus.
With that in mind, one might expect ASX-listed consumer discretionary companies to have performed somewhat poorly, but one company that has bucked the trend is Wesfarmers.
Wesfarmers shares have risen 113% over the last five years, and that's before you consider the dividend it pays (currently at a 2.4% yield). Powered by household brands such as Bunnings and Kmart, Wesfarmers continues to demonstrate its strength and resilience.
With its share price now at $83, can Wesfarmers shares hit $100 in 2025?
According to recent insights from Macquarie's High Frequency Consumer Data report, it's possible but not likely, at least without a material upgrade to earnings.
Cautious consumers, but Wesfarmers well-positioned
Macquarie's report suggests that consumers remain value-conscious, especially in the face of elevated living costs. That usually bodes well for Wesfarmers-owned brands like Kmart, which are known for affordability.
While other discretionary spending categories, like furniture stores, continue to struggle, Macquarie expects the value proposition of the Wesfarmers brands to help them outperform the broader trend.
Valuation: Quality priced in
Trading at a 31.4x forward earnings multiple, Wesfarmers is priced for its quality. Macquarie is neutral on the stock with a $75 target price, implying a modest downside from current levels.
I think Wesfarmers could break through the $100 mark in 2025, but only if there is some combination of a re-acceleration in consumer spending (possibly spurred on by interest rate cuts), margin expansion, and a higher re-rating of the multiple that investors are willing to pay to own Wesfarmers shares.
Two alternatives to Wesfarmers
While Wesfarmers remains a solid defensive play, Macquarie sees greater upside potential in other discretionary names right now, particularly Breville Group Ltd (ASX: BRG) and Treasury Wine Estates Ltd (ASX: TWE), which offer stronger valuation support.
Breville's stock is down 18% so far this year, mainly due to US tariffs, which have had an outsized effect. The company manufactures 90% of its products in China and generates 45% of its products in the United States. You can see the problem here, but I think if the US reaches a trade agreement with China, that might be a strong catalyst for Breville shares.
Treasury Wines has had its fair share of troubles over the years, including trade barriers selling into China and cost-of-living pressures affecting demand for its premium wines. However, I think a catalyst for the company might be the appointment of a new CEO, Sam Fischer, who joins from Lion Group (the local proprietor of a range of alcohol brands, including Heineken, Stone & Wood, XXXX, and Tooheys).
Foolish bottom line
Overall, Wesfarmers remains the top-tier operator in this category. It's steady, diversified, and resilient. But with its share price already reflecting much of that quality, investors looking for more upside might want to cast the net wider. Breville could bounce back sharply if US-China trade tensions ease, while Treasury Wine has a chance to reset under new leadership.
Wesfarmers may well hit $100, but it's Breville and Treasury Wine that could surprise on the upside.
