Owning Wesfarmers Ltd (ASX: WES) shares has come with a lot of earnings growth over the last five years. Analysts reckon there's plenty more to come over the next five years.
The parent business of Bunnings, Kmart, Officeworks, WesCEF (chemicals, energy and fertilisers) and many more has given investors plenty to smile about.
The latest result was pleasing, with high single-digit net profit growth, even if the market wasn't satisfied (it fell more than 5% on the day of the report). Let's see what analysts from UBS thought of the result and how bullish they are regarding earnings growth.
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FY26
After looking at the financials, UBS said that Wesfarmers' earnings before tax (EBT) and net profit after tax (NPAT) both beat analyst expectations because of a stronger performance by WesCEF thanks to ammonium nitrate, fertiliser and lithium (both the Mt Holland performance and a higher lithium price).
UBS noted that Bunnings achieved revenue growth in both consumer and commercial, with the consumer segment being stronger. The commercial segment continues to endure a "challenged backdrop".
The broker thinks that Bunnings continues to have strong revenue growth options based on its categories (with market share gains in existing ones and entry into new ones), channel (with digital growth, boosted by the new marketplace) and type of customer (namely commercial ones) – these growth channels are capital-light options.
UBS also believes that Kmart can grow its market share by capturing more dollars from existing customers, including by developing new products to expand its reach into new categories.
Officeworks is looking to reset its cost base, implement new software systems and more. But, UBS thinks there is potential execution risk by changing the product range, store format, selling team, skills and incentives and brand marketing.
Taking all of that into account, UBS forecasts that Wesfarmers could achieve $2.86 billion of net profit in FY26.
FY27
Earnings are expected to continue rising in the 2027 financial year and beyond, according to UBS.
The broker suggests that the business could generate $3.07 billion of net profit in FY27.
FY28
Net profit could get even better for owners of Wesfarmers shares in 2028, with a forecast rise to $3.41 billion, according to UBS.
FY29
Wesfarmers' net profit is expected to rise again by another $400 million in the 2029 financial year, which is a solid level of growth.
The broker suggests the retail giant could make net profit of $3.8 billion in FY29.
FY30
The best year of this series of projections is expected to be the 2030 financial year.
Wesfarmers is forecast to make $4 billion of net profit, which would mean its earnings could jump 40% between FY26 to FY30. That'd be a useful tailwind for rising earnings.
In terms of whether the Wesfarmers share price is a good buy today, UBS has neutral rating on the business, with a price target of $90. The broker wrote:
We see a balanced risk reward as WES' resilient earnings and strong EBT & ROC growth outlook for Bunnings & Kmart are reflected in its elevated multiple; Retain Neutral.
