Does Wesfarmers Share Price Have Another Run in It? (ASX:WES)

At time of writing, the share price of Wesfarmers Ltd [ASX:WES] is down .96%, trading at $40.36.

On a day when the ASX 200 [XJO] is also down 1.01% to 5,792.1, some investors may be wondering if this pause in the Wesfarmers share price recovery will last or will it have another run?

You can see shares of Wesfarmers clawed back around half of its fall with a 36% rise from a low of $29.75 to its current price:

ASX WES - Wesfarmers Share Price Chart

Source: tradingview.com

We look at forecasted earnings for Wesfarmers and its most recent financials.

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What’s happened to the company and will changes improve Wesfarmers share price?

Wesfarmers has made some big moves recently and based on the rise up the charts from the March low, you get a sense the market approves.

The company announced it was selling a 5.2% stake in Coles Group Ltd [ASX:COL] for just over one billion.

Wesfarmers realised said it expected a tidy $130 million pre-tax profit from the sale of the stake.

Looking at the Coles share price chart; it looks a decent move given the red creeping into the chart and the recent downtrend:

Coles Share Price - ASX COL

Source: tradingview.com

In a recent piece on the Woolworths Ltd [ASX:WOW] share price, we noted that share prices of companies like Woolies and Coles could cool once the panic buying stopped and value buying took hold.

So a tick for Wesfarmers on selling just over half their stake in its old supermarket chain.

The next thing Wesfarmers did was a pivot on its retail business.

It announced that it closed between 10–25 large format Target stores and 50 Target Country stores.

It said it would also swap between 10–40 large format Target stores into Kmart and swap 52 Target Country stores to small format Kmart stores.

Retail is not exactly vibrant right now, so the company is hoping the move will introduce some much-desired efficiencies.

On the outside, it looks like another wise move.

Analyst estimates for Wesfarmers earnings

Here’s a look at Wesfarmers’ estimated financials through to 2022 courtesy of Market Screener:

Market Screeners - Wesfarmers Earnings Chart

Source: Market Screener

You can see they’re largely flat, expected to register a small uptick in the coming years.

And an improved dividend of $1.58 is estimated for 2022.

Not the worst, but not the best either.

The Wesfarmers dividend yield stands at 3.76% and it has a price to earnings (P/E) ratio of 21.1.

This could be perceived as still relatively high for a mature business.

These figures are also backward looking.

Which brings us to how Wesfarmers could perform in the post-pandemic era?

Outlook for Wesfarmers share price

Wesfamers is a mammoth business that operates across a variety of sectors so it’s hard to pin down exactly how big a hit COVID-19 will give it.

Their most recent coronavirus update was mixed.

The Target restructure could hurt, but Bunnings and Office works have experienced increased demand according to the company.

As a result, Wesfarmers future earnings may hinge on how quickly Australia gets back to work.

Work leads to disposable income, which generally leads to improved sales at these types of businesses.

With an extra $1 billion from the Coles stake sale to strengthen the balance sheet and available committed debt facilities of approximately $5.3 billion, the company has a fair whack of money on hand to weather the storm.

That being said with a dividend yield of under 4% at time of writing, this could also be seen as a fair bit of risk for a company that may prove to be sensitive to macroeconomic headwinds.

Finally, if you are looking for ASX-listed dividend stocks, be sure to read our editor Greg Canavan’s brand new report on the topic.

You can download that here, for free.

Regards,

Lachlann Tierney

For The Rum Rebellion


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


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