Is the Wesfarmers Ltd (ASX: WES) share price a buy?
Wesfarmers is a 100 year-old conglomerate which at various times has owned and operated some of Australia’s largest retail brands such as Kmart, Target and more. Today, its largest business is Bunnings Warehouse, the number-one DIY home improvement business.
Is The Wesfarmers Share Price A Buy?
The Wesfarmers share price has been a solid performer since the start of the year, rising by 14% plus the payment of dividends amounting to $2 per share.
With Coles Group Limited (ASX: COL) recently being spun out of the conglomerate, what remains in Wesfarmers is largely a group of discretionary retailers which includes Bunnings, Kmart, Target and Officeworks.
In Wesfarmers’ half year result to 31 December 2018, the company said that Bunnings ANZ grew EBIT (click here to learn what EBIT means) by 7.9% to $932 million, Kmart & Target EBIT declined by 3.8% to $383 million, the Officeworks EBIT rose by 11.8% to $76 million and the Industrials segment saw EBIT decline 2.6% to $227 million.
As you can see from the above numbers, Bunnings remains the crown jewel. However, some market commentators have voiced their concern that a continually falling housing market could lead to a fall in demand for Bunnings’ property-related products.
We have already seen some property businesses like Nick Scali Limited (ASX: NCK) warn they are experiencing a slowdown of sales growth. With Kmart & Target already facing difficult conditions it’s hard to understate how important growth for Bunnings is.
I have been very intrigued by the idea of Wesfarmers’ attempted takeover of Lynas Corporation Ltd (ASX: LYC). The synergy benefits could work, but it would certainly raise the risk profile of Wesfarmers because of the political risks in Malaysia.
Time To Buy Wesfarmers Shares?
According to CommSec estimates, Wesfarmers is valued at 20 times the estimated earnings for FY20 with a projected fully franked dividend yield of 4.2%.
Wesfarmers isn’t a bad business, but I think there are better options to consider such as the reliable ASX ones in the free report below.
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