The Wesfarmers Ltd (ASX: WES) share price has gone on a solid run, rising by close to 10% since 22 August 2023, as we can see on the chart below. After this solid run, we're going to look at whether the business is an opportunity or not.
For readers that don't know this business, it's the owner of retail brands like Bunnings, Kmart, Officeworks, Target and Priceline.
The Wesfarmers share price has risen by around 7.5% since it reported its FY23 result, so the market was impressed by what the business reported.
As profit generation is one of the most important elements of a business, let's have a quick reminder of what the company reported.
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Earnings recap
It reported that revenue excluding Wesfarmers Health increased 7.4% to $38.2 billion, while total revenue rose 18.2% to $43.5 billion. Earnings before interest and tax (EBIT) climbed 6.3% to $3.86 billion and earnings per share (EPS) increased 4.8% to $2.18.
The profit growth and the 81.6% jump in operating cash flow to $4.18 billion enabled a 6.1% rise in the annual dividend per share to $1.91.
Investors are usually the most interested in the most recent trading. In the last six months of FY23, Bunnings sales rose 2.4% to $8.75 billion, Kmart Group sales went up 8.8% to $4.9 billion and WesCEF (chemicals, energy and fertilisers) revenue fell 3.1% to $1.9 billion. Turning to profitability for the FY23 second half, Bunnings earnings rose 0.7% to $952 million, Kmart Group earnings increased 3.9% to $294 million and WesCEF earnings increased 7.1% to $345 million.
What do experts think of the Wesfarmers share price?
Analysts are not necessarily right about a business just because they rate it as a buy or a sell, but it can be very interesting to know which way experts are leaning.
According to the ratings collated by Factset, there are currently seven buy ratings on the business, five hold ratings and four sell ratings. That's a fairly even mix, slightly favouring the buy recommendation. But it's certainly not a clear buy according to analysts.
It's understandable why investors are a little less excited. The Wesfarmers share price is close to its 52-week high and sales and earnings growth is seemingly at a lower rate now.
Wesfarmers pointed out that with inflation and higher interest rates, some consumers are "becoming more value conscious and trading down to lower-priced retailers and products", which bodes well for Bunnings and Kmart. It also said that low unemployment and immigration are both supporting demand.
In the first seven weeks of FY24, sales growth for Kmart Group "has continued to benefit from strong trading results in Kmart, but growth has moderated from the second half of FY23". Bunnings sales at the start of FY24 have been in the low single digits, while Officeworks sales were flat.
The company warned that costs are expected to "remain elevated driven by inflation, labour market constraints and wage cost increases, and domestic supply chain costs." However, its larger businesses are benefitting from their capacity to leverage their "scale and sourcing capabilities."
However, earnings from WesCEF's existing operating businesses are "expected to decline significantly" in FY24, due to lower ammonia prices and higher input gas costs. However, the lithium earnings will contribute to WesCEF in the second half of FY24.
Wesfarmers share price valuation snapshot
According to estimates on Commsec, the Wesfarmers share price is valued at 24 times FY24's projected profit.
