Owners of Wesfarmers Ltd (ASX: WES) shares hold a piece of one of Australia's best companies, in my view, which generate impressive earnings. The parent company of businesses including Bunnings, Kmart, and Officeworks is expected to have a strong few years.
Customers are always attracted to good value products, and it sells them in abundance across multiple retail names. Pleasingly, its scale gives it the ability to achieve strong returns for shareholders, as measured by the return on capital (ROC) and return on equity (ROE).
When a business earns a ROE of more than 20%, it tells me that the business can deliver further pleasing earnings and share price growth in the future, assuming there are still areas for the company to invest the profit it has generated and retained.
How much earnings growth could it deliver? Let's see what experts think…
FY26
Following the release of the FY25 results, broker UBS stated that the profit was in line with expectations and noted that sales had grown for Bunnings, Kmart, and Officeworks in the first few weeks of FY26.
UBS says that Wesfarmers has resilient earnings, as well as a strong earnings before tax (EBT) and return on capital (ROC) growth outlook for Bunnings and Kmart, though the company's "elevated earnings multiple" has led to a more balanced risk reward.
The broker noted the following about Bunnings and Kmart:
…Bunnings enjoys strong revenue growth options based across category (share gains in existing, entry into new), channel (growth in digital enabled by marketplace) and customer (commercial ~38% of sales but 50% of the market), with this growth capital light. Bunnings reiterated it believed EBT margins could expand given investment, provided price investment continues such that it is chosen by customers. These factors support ongoing EBT growth and ongoing ROC expansion.
…Kmart was confident the drivers from FY25 would continue and that it could maintain share gains during more buoyant times, noting value is enduring and its Anko product development can provide value in different environments.
Based on that commentary, UBS predicts that Wesfarmers' earnings could grow to $2.84 billion in the 2026 financial year, with the operating profit (EBIT) margin increasing to 9.4%. That is a promising tailwind for Wesfarmers shares, if those profitability metrics do grow.
FY27
With pleasing profit growth predicted for FY26, the subsequent financial year could see another bump in profitability.
The 2027 financial year could see the company grow its net profit to $3.14 billion, partly thanks to an increase in the EBIT margin to 9.7%.
FY28
Profitability could improve further in the 2028 financial year, with net profit rising to $3.51 billion. Operating leverage could see the company's EBIT margin improve again to 10.2%.
FY29
The 2029 financial year is predicted to bring yet more profits to owners of Wesfarmers shares.
In FY29, the net profit could rise to $3.83 billion, and the EBIT margin is forecast to increase to 10.4%.
FY30
The final year of this series of projections could be the best one of all. The net profit could increase to $4.24 billion, representing a nearly 50% increase from the figure predicted for FY26.
The expected net profit figure is bolstered by the potential increase in the EBIT margin to 10.9% (up from 9.4% in FY26).
If these numbers occur, then the business has a very promising future ahead, and it's understandable why the Wesfarmers price-earnings (P/E) ratio has increased.
