The Wesfarmers Ltd (ASX: WES) share price has been a very pleasing investment over the last several months. In 2025 to date, it has delivered a capital gain of 25%, outperforming the S&P/ASX 200 Index (ASX: XJO) gain of around 10%.
The company has been powered by the excellent performance of its biggest businesses – Bunnings and Kmart. Both of those segments deliver very impressive returns on capital (ROC), enabling the business to deliver a stronger overall return on equity (ROE).
Where could Wesfarmers end up in another 12 months? I'm not expecting another 25% rise, but it is interesting to consider how an investment of $5,000 could develop.
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Best case scenario?
There is a range of analysts who look at the business. They each have a different view on how much the company could be worth in a year from now.
Let's start with what the most optimistic analyst thinks of the business.
Morgan Stanley is one of the most bullish brokers on the retail giant right now, according to CMC Markets, with a price target of $93.50. A price target is where the broker thinks the share price will be in 12 months from the time of the investment call.
Therefore, Morgan Stanley is suggesting that the Wesfarmers shares could rise by approximately 4%, equating to a rise in dollar terms of just over $200 for a $5,000 investment.
Less optimistic viewpoint
However, there are plenty of analysts who seem to think the Wesfarmers share price has risen as far as it can, or even gotten ahead of itself in the short term.
According to CMC Markets, the average price target of all of the analysts being monitored is $80.57. While that's notably higher than where the Wesfarmers share price was a year ago, it implies a possible fall of around 10% from where it is today. That could see $5,000 turn into approximately $4,500.
Half of the analyst ratings on the business are holds, and the other half are sells.
Is this a good time to invest in Wesfarmers shares?
Overall, these analysts seem cautious on the valuation, but it should also be recognised that Wesfarmers looks the highest-quality it has ever been.
The earning power of Bunnings and Kmart is strong and competition for those businesses is relatively weak. Those businesses have done well to grow earnings during the last few years, which has been a difficult period for retailers. Wesfarmers has won over customers with its value offering, while the Kmart product offering has improved over the last few years.
Wesfarmers may also positively surprise the market with its efforts to grow its other divisions, such as healthcare, Officeworks and chemicals, energy and fertilisers (WesCEF).
In five years, I expect Wesfarmers' profit will rise over the next five years, which could be a helpful tailwind for the business.
