Wesfarmers Ltd (ASX: WES) shares have been in focus this week.
That's because the Bunnings owner held its annual strategy day, which saw the conglomerate lay out its growth plans.
The team at Macquarie has been running the rule over the strategy update. Let's see what the broker is saying about the company and its plans.
What is being said about the company?
According a broker note released this morning, Macquarie points out that the key theme for the strategy day was the significant growth opportunities in its key retail businesses. It said:
Bunnings reiterated its estimated ~$110bn total addressable market. Compared to FY24A sales, this suggests ~17% market share and therefore is a significant growth opportunity.
Kmart highlighted low market share in existing categories (e.g., ~8% of ~$47bn Apparel market) and broadening ranges (e.g., ~2% share of ~$3.5bn Cleaning market). Further, WES announced an aspirational target of doubling the size of Kmart, referencing prior ambitions of $10bn of sales and $1bn of EBT. This may suggest Kmart sales rising to $20bn+, with the group saying it is targeting earnings growth ahead of sales growth, but did not commit to a timeline.
Macquarie also highlights that management sees major opportunities in the retail media market and is positive on its health opportunity. Though, it does concede that it is behind schedule. It said:
Conviction remains on Health. Consistent with recent commentary, WES noted its Health segment was tracking ~1-1.5 years behind where it was hoping to be. However, looking forward it remains positive on the segment, particularly as it tests new store formats. Note Health's ROC was 3.1% as at Dec-23 vs. 18% target.
Are Wesfarmers shares good value?
While the broker is a big fan of Wesfarmers and its many businesses, it isn't a fan of its valuation.
As a result, this morning, its analysts have retained their neutral rating on Wesfarmers' shares with an improved price target of $80.00. This is approximately 4% below where its shares currently trade. They said:
WES' portfolio of businesses are best-in-class, with long-term opportunities in existing opportunities and adjacencies. However, with stock trading at close to all-time high FactSet consensus P/E, we retain our Neutral recommendation.
Though, it is worth noting that Goldman Sachs is more positive. This morning, it put a buy rating and $87.30 price target on its shares. It said:
We have a Buy recommendation for WES based on 1) Bunnings' market share gain against soft operating backdrop 2) Bunnings' long term growth options in sales/sqm and Retail Media. 3) Portfolio management sees Lithium/Health scaling to deliver double digit EBIT growth in FY26. WES in our view is undervalued relative to these growth prospects.
