Is Wesfarmers a buy?

The current price and 5.1% forecast yield is tempting.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Wesfarmers (ASX: WES) is one of Australia's largest companies, with a market capitalisation of $45 billion. For comparison, telecom giant Telstra (ASX: TLS) has a market cap of $58 billion, while supermarket chain Woolworths (ASX: WOW) has a market cap of $40 billion. Wesfarmers is also one of Australia's most diversified companies; owning a number of businesses in a range of different sectors.

Diversified conglomerate

Wesfarmers operates in five broad divisions which offer shareholders exposure to a number of industries and also safety from a diverse range of earnings streams. Those five broad divisions are:

  • Retailing: Wesfarmers owns some of Australia's most widely known retailers including Coles, Target, Kmart, Bunnings and Office Works.
  • Resources: Wesfarmers is one of Australia's largest independent coal producers.
  • Insurance: The insurance division has revenues of around $2 billion, providing insurance and risk management solutions across Australia, NZ and the UK.
  • Chemicals, Energy & Fertilisers: Wesfarmers manufactures and supplies products which are used across resource, industrial, construction, rural and other industries.
  • Industrial & Safety: This division had earnings before interest and tax of $190 million in financial year (FY) 2012 and is a leading provider of industrial and safety products and services.

 

Valuation

Wesfarmers earned $1.839 per share in FY12. According to Morningstar, consensus earnings expectations for FY13 are $1.998 per share and FY14 $2.232 per share. Based on the FY14 estimate this places Wesfarmers on a forward price-to-earnings multiple of 17.5.

Dividend yield

The company paid an FY12 dividend of $1.65. Expectations for dividends in FY13 are $1.80 per share and FY14 of $2 per share. Based on this forecast, at Wesfarmers' current share price of $39.10, the stock is trading on an FY13 forecast dividend yield of 4.6%, however this rises to 5.1% on FY14 expectations.

Foolish takeaway

When Wesfarmers purchased Coles, there were question marks over whether the return on investment would justify the acquisition price. So far, the company appears to be doing a reasonable job at improving efficiencies and profitability. As one of Australia's leading companies with a solid and diverse earnings stream, any future price weakness created by the current volatility could provide an opportunity to purchase a market-leading business at a reasonable price.

In the market for high-yielding ASX shares? Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading


Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »