What’s the outlook for Wesfarmers following retail trading update?

We examine some of the highlights from Wesfarmers recent Retail Trading Update.

Wesfarmers share price rises, some analysts remain sceptical

Australian conglomerate Wesfarmers (WES) has seen its share price perform strongly during the last five sessions – rising just over 6%, to last trade at $43.30 per share. At those price levels, WES has an implied market capitalisation of $49.10 billion.

This comes as the conglomerate – which owns many of Australia’s most iconic businesses – has seen strong growth across its retail operations since January, particularly in terms of online sales growth.

Driven by a change in consumer behaviour as a result of the coronavirus pandemic, Wesfarmers yesterday released a market update that showed strong growth across the majority of its retail businesses.

Specifically, WES reported that from 2H20 to the end of May: Bunnings experienced total sales growth of 19.2%, Kmart 4.1%, Officeworks of 27.8%; while Target saw its sales growth contract by 1.8%.

With Kmart and Target standing out as the laggards of the bunch, WES management pointed out that:

'Sales momentum in Kmart and Target has improved with a general increase in customer footfall in shopping centres and a recovery in customer demand for apparel, particularly winter clothing.'

Elsewhere, Catch.com, which was acquired by Wesfarmers in 2019, saw its gross transaction values climb 68.7% during the second half of FY20.

Overall, Wesfarmers said that its retail-focused online sales had almost doubled since January, rising 89% year-to-date. This strong sales uptick was attributed to both the significant investment made in the Group's online 'ecommerce capabilities' as well as the 'greater customer preference for shopping online during COVID-19.’

Even with that strong growth, the outlook remains uncertain, with it being noted that:

'Given the significant changes to the usual customer shopping patterns and expected future changes to government measures, it is uncertain whether the higher levels of sales growth will continued for the remainder of the calendar year.’

In response to this latest market release, a number of key investment bank analysts raised their price targets on Wesfarmers.

For example, Goldman Sachs revised their 12-month price target on WES to $42.50 and maintained their Neutral rating. J.P. Morgan also revised their price target up on WES to $37.00 per share, while retaining their Underweight rating on the stock.

Like Goldman and JP, Citi analysts also positively revised their WES price target, but remained bearish overall with a Sell rating on the stock. Citi analysts cuttingly said ‘Despite trading on 24x FY21e PER, Wesfarmers is unable to generate meaningful earnings growth, with just +0.8% in FY20e and +0.2% in FY21e on a continuing basis.'

How to trade Wesfarmers – long and short

What do you think: are you bullish or bearish on Wesfarmers’ prospects? Trade accordingly. For example, you can trade WES shares and other large-cap ASX stocks – both LONG and SHORT – through IG’s world-class trading platform now.

To buy (long) or sell (short) Wesfarmers with CFDs, follow these simple steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘Wesfarmers’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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