The Wesfarmers Ltd (ASX: WES) share price has grown strongly since the start of February, where will it go next?
Wesfarmers is a conglomerate which has a focus on retail businesses. It has a market capitalisation of $50 billion and is known for businesses such as Coles, Bunnings, Kmart, Target and Officeworks.
Here are the reasons why I think the Wesfarmers share price could rise or fall:
The bull case
The main Wesfarmers businesses, namely Bunnings & Coles, continue to grow their earnings before interest and tax. If they continue growing their profits then that will positively impact Wesfarmers' overall business.
Bunnings has recently expanded into the UK when it acquired Homebase. If it can replicate the success of the Australian Bunnings then it could turn into a very profitable venture.
Management announced that Officeworks may be spun off to create shareholder value, this money could be used to generate earnings elsewhere in the business.
The bear case
Bunnings UK could be a good business, but there is also a good chance that it runs into same the problems that Woolworths Limited (ASX: WOW) did with Masters. Trying to challenge a market leader can be a costly venture.
Amazon is predicted to open its doors in Australia later this year. This could dent any growth of several of the Wesfarmers businesses, I think it's a smart move to spin-off Officeworks whilst it's still making a profit.
The resurgence of the coal price has boosted the industrial part of Wesfarmers' business, but there is now a good chance that the coal price could decrease, which would then be a negative for Wesfarmers' share price.
Foolish takeaway
Wesfarmers is a well-run company with several strong businesses. However, I'm not sure the share price can make many more gains because of the headwinds that are facing it – particularly from Amazon.
I don't think Wesfarmers is a buy at this price, instead I'd be looking at these three great growing blue chips.
