5 reasons to stick with your Wesfarmers Ltd shares

The Bunnings division provides a significant future growth channel for Wesfarmers Ltd (ASX:WES).

| More on:
a woman

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

The share price performance of Wesfarmers Ltd (ASX: WES) hasn't exactly been spectacular over the past year with the stock down 7%.

Despite the decline, Wesfarmers has still outperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) which has experienced a fall of 12%.

When you consider the drag on earnings the group has had to contend with from the slump in coal prices, this relative outperformance is all the more impressive.

Importantly, there are a number of reasons for shareholders to be optimistic about the future. Here are five to consider:

1. Coles – The food, liquor and petrol retailing giant continues to grow its earnings. For the six months ending December 31 2015, earnings before interest and tax (EBIT) increased by $50 million to $945 million.

2. Bunnings – Having seen off competition from a cashed-up Woolworths Limited (ASX: WOW), which recently announced that it would seek to sell or close Masters Home Improvement, Bunnings is now in an even stronger domestic market position.

The potential to replicate this domestic success in the UK via the recent acquisition of Homebase provides an exciting launching pad into what could become a major growth avenue for the group.

3. Target – The divergence between the performance of Kmart and Target is stark (both discount department stores are owned by Wesfarmers). This situation provides plenty of turnaround potential for the Target business which currently has an EBIT margin and return on capital (ROC) of just 3.8% and 3.8% respectively, compared with a margin of 11.6% and 36.6% at Kmart.

4. Coal – While few analysts are predicting a near-term rebound in coal prices, a resetting of the cost base and an improved exchange rate and currency hedge position have the potential to improve the future performance of this loss-making division.

5. Dividends – with a trailing dividend of 202 cents per share, the stock is trading on a fully franked yield of 4.9%.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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 »