Wesfarmers Ltd (ASX: WES) shares have been flat around $82.35 on Tuesday, but the retailer has endured a rough year, falling 7% over the past month and 13% over 12 months.
Interest rates, inflation and persistent cost-of-living pressures have weighed on the company behind Bunnings, Kmart Australia, Officeworks and Priceline.
The shares have also been volatile, trading between a 2026 low of $71.26 in May and a high of $92.96 in July. Now, investors are looking towards Thursday's FY26 results for clues about what's next.
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Plenty to like, but valuation concerns remain
There's plenty to like about Wesfarmers shares. Kmart continues expanding its Anko brand internationally, with five stores already opened in the Philippines and another five planned by the end of FY27.
Bunnings is also pushing into new categories, including pet products and automotive accessories, while Kmart is testing larger K Home stores to capture more of the furniture market. Both remain exceptional retailers, backed by strong brands, competitive pricing and impressive returns on capital.
Wesfarmers is also developing potential growth engines through Priceline, OnePass, customer data, retail media and its Mt Holland lithium project. The company is also deploying artificial intelligence across merchandising, marketing, supply chains, and productivity.
But the valuation could be the problem. At around $82.35, Wesfarmers shares trade at almost 31 times estimated FY27 earnings. That's a hefty multiple that leaves little room for disappointment.
Investors will therefore be watching FY26 group financial metrics and the final dividend closely. The results could set the tone for Wesfarmers shares in the months ahead.
Experts are turning bearish
According to TradingView data, nine of 15 analysts rate Wesfarmers shares a strong sell. Five have a hold rating and just one analyst recommends buying the shares.
The average price target of $77.56 implies around 6% downside from the current price, while the most bearish forecast sees the shares plunging more than 20% to $65.10 over the next 12 months.
Morgan Stanley has a sell rating and $79 price target. The broker recently warned that the rally in consumer discretionary stocks has "run ahead of fundamentals" and may not prove durable.
Alto Capital's Tony Locantro is also bearish. He believes Wesfarmers' quality and long-term growth prospects are already largely reflected in the valuation, leaving less room for upside if expectations aren't met.
With FY26 results just days away, Wesfarmers investors may need to ask whether its exceptional businesses can justify an exceptional valuation.
