Wesfarmers Ltd (ASX: WES) shares have underperformed over the past 12 months, slipping 17.1% over the period.
The analyst team at Jarden believe a turnaround is on the way, however, with a modest share price improvement forecast over the next year.
Image source: Getty Images
Muted revenue growth for FY26
Wesfarmers, which owns Bunnings, Kmart, and its lithium mining operations WesCEF, grew its revenue in FY26 by just 3.4% to $47.3 billion.
Net profit came in at $2.9 billion, down 1.8%.
The Jarden team said the drop in the Wesfarmers share price over the past year meant that it was "nearing its oversold territory".
They added:
The weakness is a function of negative earnings per share revisions and macro concerns. We view these concerns as overdone – with WES' retail divisions consistently growing regardless of the cycle.
Jarden said Australian consumers were facing headwinds, with cost-of-living pressures eroding cash flow and discretionary spending growth halving.
With this as the backdrop, they looked at Wesfarmers' performance over the past 20 years to assess how it performed through the cycles.
Our conclusion: a combination of share gains, space growth, expandable categories and an everyday low pricing offer that outperforms in cyclical downturns, has seen WES' brands consistently deliver sales growth over the past 20yrs. The above, combined with its category killer status and marketplace/AI push, leaves WES retail well-positioned to continue this growth. We see limited risk to consensus, with market margin forecasts arguably conservative, led by Bunnings, which is forecast to contract 6 basis points in FY27. This is despite sourcing, productivity and mix benefits that should see Bunnings continue its 2H26 margin trend, the biggest lift since 2021.
Jarden said Wesfarmers management was executing well, with a clear plan, and they believed there was upside developing into FY28.
They said there was an opportunity for Wesfarmers to become the leading customer-facing business in Australia across health, consumables, and energy, "and while this will take time and money, we don't believe it's reflected in the current share price''.
Jarden said earnings growth was likely to accelerate into FY28 as Wesfarmers' digital and AI push drove better return on invested capital, similar to the experience of Walmart in the US.
Share price should appreciate
Jarden has a price target of $83.20 for Wesfarmers shares, compared with the current $75.77.
If achieved, this would constitute a 9.8% return, with the company also paying a 3.3% dividend yield.
Wesfarmers is valued at $85.9 billion.
