Wesfarmers Ltd (ASX: WES) shares are one of the most appealing ASX blue-chip ideas Aussies can buy, in my opinion. The owner of Bunnings and Kmart has clearly done well, but the more important question is what happens next.
It could be useful to consider the company's plans, what might happen with its profit margins and the bottom line.
Wesfarmers has successfully utilised its scale and other competitive advantages to grow. Kmart and Bunnings market themselves on the value of their products – these are the two key earnings generators of the business.
Let's look at how things could develop for Wesfarmers in the coming years.
Further business growth
Over the years, Wesfarmers has largely proven shrewd in allocating its money to businesses that can strengthen its financials and exiting companies it doesn't think are compelling to own any more.
Its Anko products are widely sold in Kmart stores across Australia. I'm excited by the move to sell these products overseas. Anko is now selling certain products to North America and it's opening stores in the Philippines. Anko currently has five stores in the Asian market and I'm optimistic the business will open a number of more stores in the next three years.
A mining project is another focus for the business, its WesCEF (chemicals, energy and fertilisers) division owns a 50% share of the Covalent lithium project. The company recently completed the construction of the Kwinana lithium hydroxide refinery, with first production in July 2025.
WesCEF's share of spodumene concentrate production for FY25 was 145kt, with production continuing to ramp up over the following 18months. I believe the company will have reached its full potential within three years.
Profit
Analysts are expecting Wesfarmers to become increasingly profitable as time goes on, which would be music to investors' ears.
In FY26, the current financial year, UBS is expecting the business to deliver revenue growth to $47.7 billion, an operating profit (EBIT) margin of 9.2%, net profit of $2.8 billion and a return on invested capital (ROIC) of 24.1%.
In FY28, Wesfarmers is predicted by UBS to achieve $53.6 billion of revenue, an EBIT margin of 10%, net profit of $3.46 billion and a ROIC of 29.2%.
If the company is able to continue growing its earnings, then ultimately this is likely to lead to a higher valuation.
Wesfarmers share price valuation
A share price doesn't usually change in exact sync with profit growth. Changes in future profit expectations, interest rates and broader changes in market confidence can also have big impacts on how a business is valued.
Currently, the Wesfarmers share price is valued at 33x next year's (FY26) earnings. I wouldn't expect Wesfarmers to hold onto a price/earnings (P/E) ratio that high forever.
If, in three years, it traded at (for example) 30x FY28's estimated earnings, it'd have a share price of $91.50. That'd be a rise of 14% (plus the dividends) over three years from today. That's a fairly rudimentary way of calculating possible returns, though.
Wesfarmers is a wonderful business and I'd be happy to own it for the long-term with its plans, though I'm not expecting massive growth due to its already-large size.
