Wesfarmers Ltd (ASX: WES) shares continue to flex their muscles.
The retail heavyweight gained a modest 0.3% to $90.48 during Thursday afternoon trade, but don't let that fool you. The stock is still edging closer to its all-time high of around $95.
It's been a cracking run. Wesfarmers shares have climbed roughly 12% over the past month and are now up 11% in 2026. That's comfortably ahead of the S&P/ASX 200 Index (ASX: XJO), which has gained around 1% over the past month and is barely positive for the year.
The obvious question now is whether the market has got carried away, or whether Wesfarmers still has room to climb.
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Why are Wesfarmers shares rallying?
A few things have fallen into place for Wesfarmers shares. For starters, Australian consumers have proved tougher than many expected. Household spending rose 1.3% last month, comfortably beating forecasts and easing fears that higher living costs were crushing retail demand.
Interest rate expectations have also helped. Markets increasingly expect the Reserve Bank of Australia to keep rates on hold at its next meeting, reducing concerns that households could face another squeeze from higher mortgage repayments.
That's been music to the ears of retail investors.
Retail royalty
Wesfarmers isn't just another retailer. It owns some of Australia's best-known brands, including Bunnings, Kmart Australia, and Officeworks.
Bunnings remains the undisputed king of home improvement, while Kmart has quietly become one of the country's most successful discount retailers. Both businesses thrive by offering value, scale, and convenience.
Ironically, if consumer spending does soften during FY27, Wesfarmers shares could actually benefit as shoppers trade down and hunt for bargains.
Being the low-cost leader isn't a bad place to be.
There's more than retail under the bonnet
Wesfarmers also continues to find new ways to grow. Its Anko expansion is gathering momentum, with stores opening across the Philippines and more planned before the end of FY27.
Meanwhile, Bunnings keeps moving into new product categories, including pet supplies and automotive accessories. Kmart is experimenting with larger K Home stores, potentially opening another growth avenue beyond its traditional discount retail business.
The company also maintains exposure to lithium through its mining interests, giving shareholders another potential long-term earnings driver if battery materials regain momentum.
The secret sauce
One reason Wesfarmers shares command such a premium valuation is simple: the company generates outstanding returns. During the first half of FY26, Bunnings produced a return on capital approaching 71%, while Kmart wasn't far behind at almost 70%.
Across the broader business, return on equity reached 32.7%.
Those are elite numbers. Very few mature ASX companies consistently generate that level of profitability while continuing to reinvest for future growth.
What do brokers think?
Here's where things get interesting.
According to TradingView data, analysts are far less enthusiastic than the market.
Of the 14 brokers covering Wesfarmers shares, seven recommend holding the shares, six rate them as either a sell or strong sell, and only one has a buy recommendation.
The average 12-month price target sits at $76.91, implying a downside of around 15% from current levels.
Even the most optimistic analyst doesn't expect the shares to move meaningfully above today's price, while the most bearish forecast suggests downside of roughly 28%.
Foolish Takeaway
After a stellar run, investors appear willing to pay almost any price for Wesfarmers' strengths. Brokers, however, aren't so convinced.
For long-term shareholders, Wesfarmers shares still look like they're worth owning. New investors may simply need to decide whether they're comfortable paying a premium for one of the ASX's best operators.
