Should You Buy Wesfarmers Ltd Shares Today?

What Happened to the Wesfarmers Share Price?

Wesfarmers Ltd [ASX:WES] opened lower for the day and saw a slight decline in share price in the afternoon. WES was trading at AU$45.41 at 1:56pm. This was a 0.87% drop from the previous day. The ASX reacted positively to BHP Billiton’s dividend boost, which helped to pull up the market. The financials were mostly flat for the day. On the ‘losers’ side, Wesfarmers Ltd was one of the majors that weighed down on the market.

Why Did This Happen to WES Shares?

Wesfarmers Ltd produced a slightly positive interim result recently, with a 4% rise in revenues. Net profit after tax saw a welcome 8.3% growth, to AU$1.376 billion. Earnings per share were higher at 120.7 cents per share. Return on equity improved, and so did its interim dividend, now at 89 cents per share.

While the latest results may make WES an attractive stock to own, market analysts are quite divided when rating the stock. Currently, there are one ‘buy’, two ‘outperform’, seven ‘hold’, three ‘underperform’ and one ‘sell’ assessments. There is a consensus on the general expansion of the company; however, the market is still unsure about which way the company’s stock price is going to go in the near term.

What Now for Wesfarmers Ltd?

The market can hardly be blamed for not knowing. Wesfarmers is diversified across retail, insurance and industrials in Australia. In a way, investors can think of WES as a bet on the Australian economy, and the Australian economy is still quite weak.

Coles, K-mart and Bunnings were some of the strong performing brands in the company’s retail portfolio. However, the Australian retail sector still faces a lot of risks. We have a deteriorating retail sales growth figure, higher unemployment and service sector contraction.

For the industrial sector, we have falling industrial production growth, contracting manufacturing and still weak business confidence. In terms of prices, we are experiencing slower inflation growth on the consumer level and a much weaker growth on the producer level. This means we are not in deflation yet, but we are seeing lower prices and that is not good for the industrial sector, nor is it for the consumer sector.

Investors are anticipating more cuts from the Reserve Bank of Australia in the coming months. As additional liquidity is injected into the economy, investors need to be watchful of the effectiveness of the interest rate cuts. For those investors who think the current pricing of WES may be too high, especially given a challenging macro-economy, they are going to wait for a price adjustment on the stock.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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