Do brokers think the Wesfarmers (ASX:WES) share price is in the buy zone?

Macquarie thinks the Wesfarmers (ASX: WES) share price could be a buy after its recent market presentation. Let's take a look.

| More on:
A businessman lights up the fifth star in a lineup, indicating positive share price for a top performer

Image source: Getty Images

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 Wesfarmers Ltd (ASX: WES) share price has taken a breather from its all-time record high of $56.40 in February. 

The diversified conglomerate has held up relatively well compared to peers such as Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) which have slumped in light of normalising consumer behaviour. 

At the market close today, the Wesfarmers share price was trading up 0.7% at $54.26.

Is the Wesfarmers share price in the buy zone? 

Macquarie weighed in on the Wesfarmers share price after its conference presentation on 5 May.

The broker looked to be impressed by the opportunities at hand to grow the diversified business. These include the expansion in chemicals, lithium production and growing regional distribution centres for Bunnings. 

The note also highlighted the company's commitment to absorbing as much of the cost pressures as possible. This points to exploring opportunities with alternative suppliers to maintain competitiveness. 

The Macquarie rating is outperform with a $56.60 target price. 

Wesfarmers presentation highlights 

Surging online sales 

Wesfarmers has made a significant effort to drive its data and digital capabilities, which has seen its retail online sales surge to $2.0 billion in the first half of FY21, almost higher than the entirety of FY20 online sales. 

The company intends to continue to enhance its digital capabilities and improve the customer shopping experience. In the context of its Bunnings business, this includes increased online access to product ranges, enhancements to its product finder app and continue to support click/drive & collect services. 

WesCEF eyes lithium production 

WesCEF is the chemical, energy and fertiliser arm of the company. It recently approved the final investment decision of its Mt Holland lithium project, in partnership with Chile's leading lithium producer, SQM. 

Wesfarmers estimated its expected share of total project capital expenditure to be approximately $950 million. The current indicative timeline for the project eyes construction to start in the second half of 2021 with production to begin in the second half of 2024. 

In its definitive feasibility study, concentrator and refinery production capacity was increased from 45ktpa to 50ktpa of sustainably sourced battery-grade lithium hydroxide, with capacity for a second phase expansion. 

To add some perspective, Vulcan Energy Resources Ltd (ASX: VUL) and its flagship Zero Carbon Lithium project is targeting 40ktpa lithium hydroxide production. 

Accelerating the growth of Kmart 

Wesfarmers has made Kmart the focal point of its department store business. This has seen 22 large format Target stores converted to Kmart stores, and 52 Target Country stores converted to the new K Hub format. 

The company plans to continue to support Kmart's growth by accelerating its network growth to address key market gaps. This will hopefully unlock further scale benefits and deliver an earnings uplift for the group. 

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET, Wesfarmers Limited, and Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Person handing out $50 notes, symbolising ex-dividend date.
Broker Notes

Where to invest $20,000 into ASX 200 shares

Brokers think these shares could be top picks for Aussie investors.

Read more »

The words short selling in red against a black background
Share Market News

These are the 10 most shorted ASX shares

Let's see which shares short sellers are targeting this week.

Read more »

Woman in celebratory fist move looking at phone
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A female financial services professional with a manicured black afro hairstyle turns an ipad screen to show a client across the table a set of ASX shares figures in graph format.
Share Market News

Record CBA share price and blockbuster merger push ASX 200 financials sector to the top

ASX financial stocks led the 11 market sectors last week with a 1.95% gain.

Read more »

A graphic showing a businessman running up a white upwards rising arrow symbolising the soaring Magellan share price today
Share Market News

CBA Shares in focus: How Australia's most valuable company is using AI to compete

Could AI initiatives drive CBA shares higher?

Read more »

Man jumps for joy in front of a background of a rising stocks graphic.
Broker Notes

These ASX 200 shares could rise 20% to 50%

Looking for big returns? Brokers think these shares could do the job.

Read more »

asx share price represented by cartoon letters spelling the word FOMO
Share Market News

What did Macquarie's "FOMO Meter" reveal about the stock market in May?

Is the market getting frothy or is there still room to climb?

Read more »

Market up or down
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors had a rough end to the week...

Read more »