Wesfarmers Ltd (ASX: WES) shares hit an annual low in mid-May, but they've rebounded strongly ever since.
Headwinds facing the company earlier in the year – including concerns about interest rate increases and inflation – have recently turned into tailwinds.
Investors began to realise that the sell-off was overdone.
At the time of writing, shares in the conglomerate – whose retail subsidiaries include Bunnings Warehouse, Kmart Australia, Officeworks, and Priceline – are around 0.5% higher, trading at $91.42 per share.
The latest share price movement means Wesfarmers shares have now recovered all of the losses shed earlier this year. They're now 11% higher for the year to date, and 4% higher than a year ago.
For context, the S&P/ASX 200 Index (ASX: XJO) is up around 5% year to date and roughly 4% higher than 12 months ago.
Now the question is, what's ahead for August? Should investors buy more Wesfarmers shares, or is it time to sell up their existing holdings instead?
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Here's what the experts think
Analyst sentiment on the conglomerate's outlook over the next 12 months is pretty negative, with many tipping a large downside.
Market Index data shows that the majority of brokers have a sell rating on the shares. The $78.16 average target price implies a potential 14% downside at the time of writing.
TradingView data shows something similar. Out of 15 analysts, nine have a strong sell rating on the shares. Another five rate Wesfarmers shares as a hold, and one has a buy rating. The average target price is slightly lower at $77.35, implying a 15% downside. But some have forecast that Wesfarmers shares could crash 29% to $65.10 over the next 12 months.
The team at Morgan Stanley has a sell rating on the consumer discretionary company and a $79 12-month price target. The broker warned that the rally in discretionary spend stocks has "run ahead of fundamentals and is unlikely to prove durable".
Tony Locantro from Alto Capital also has a sell rating on Wesfarmers shares. He said that while the company delivered a strong first-half result, much of its quality and long-term growth outlook looks fully reflected in the current valuation. He added that future upside may be constrained by elevated market expectations.
Up or down: What could influence Wesfarmers shares this month?
Wesfarmers has been actively expanding. The company has opened five Anko stores in the Philippines and plans to launch another five by the end of FY27.
Locally, its Bunnings brand continues to expand into new categories, including pet products and automotive accessories. And also, its Kmart segment is testing larger K Home stores in an attempt to break into the furniture retail market.
Reporting season could also influence Wesfarmers shares this month. The conglomerate will report its full-year FY26 results on the 27th of August.
Investors are eager to find out Wesfarmers' FY26 key group financial metrics and final dividend size. The result is expected to influence the direction of Wesfarmers shares over the next month, or longer.
The company has already paid a fully-franked interim dividend of $1.02 per share. Consensus estimates point to a final FY26 dividend of around $2.20.
So, are Wesfarmers shares a buy for passive income?
Share price growth might not be on the table, but the shares could still be valuable from a passive income perspective. The business is forecast to pay its shareholders a dividend of up to $2.33 per share in FY27, representing a 7.9% year-over-year increase.
At the time of writing, that forecast translates into a dividend yield of around 2.6% for FY27. That's not a huge yield, but the payments are consistent for investors seeking reliable passive income.
