The Wesfarmers Ltd (ASX: WES) share price is down to $41.24, is it worth a buy?
Wesfarmers is the conglomerate company behind Bunnings, Coles, Target, Kmart, Officeworks and a few industrial businesses.
The business has been a great buy-and-hold for shareholders who have held for more than five years, but the share price hasn't moved out of the $40 to $45 range for a long time.
Here are my reasons to be positive or negative about Wesfarmers:
Bull case
The Australian economy just keeps growing and Wesfarmers is one of the biggest beneficiaries of that. The economy is actually predicted to grow faster in the near future.
There has been speculation that Wesfarmers could divest the retail businesses of Kmart, Target and Officeworks. The looming arrival of Amazon could make this a smart move. Wesfarmers could redirect the capital towards its growing businesses or new businesses.
The income potential of Wesfarmers is still strong. It has a grossed-up dividend yield of 7.72%, which is great for a blue chip. The dividend will somewhat support the share price in the short-term.
Bear case
The main cause of concern for me is the lack of growth for most of its businesses. Bunnings is the only one showing sustainable growth.
The industrial businesses had a strong result this year, but they are so cyclical that they could easily go backwards next year.
Foolish takeaway
Wesfarmers is currently trading at 16x FY18's estimated earnings.
The point of investing in individual shares is to beat the market, otherwise you may as well just invest in index funds. I think Wesfarmers will perform similar to the market unless it sells its retail businesses. In my opinion only retirees looking purely for blue chip income should seriously consider Wesfarmers shares.
