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Why this broker thinks the Wesfarmers (ASX:WES) share price is in the buy zone

There’s plenty to like about this strong ASX performer, says one broker
The post Why this broker thinks the Wesfarmers (ASX:WES) share price is in the buy zone appeared first on The Motley Fool Australia. –

The Wesfarmers Ltd (ASX: WES) share price has been a top performer for ASX investors for quite a while now.

Not only are Wesfarmers shares currently up 0.63% today to $58.98, but they are also up a healthy 14% year to date, 26% over the past 12 months, and 96% over the past 5 years. Those numbers don’t include Wesfarmers’ dividends either, which would have boosted them even higher.

In fact, today’s share price puts Wesfarmers less than 1% away from its all-time record high that we saw just yesterday. The company’s new high watermark now stands at $59.63.

What has been driving Wesfarmers shares to new highs? Well, one seemingly positive development was the recent announcement that the conglomerate is pursuing Australian Pharmaceutical Industries Ltd (ASX: API).

On Monday, Wesfarmers announced it had put up an offer of $1.38 per share in cash to acquire API in full. Although API is still considering this offer, the Wesfarmers share price has added around 1% since this announcement. So evidently, investors are, at the very least, interested.

Today, we reported the Australian Competition and Consumer Commission had some concerns over the merger due to both companies’ sizeable loyalty programs. However, that doesn’t seem to have had a negative impact on the Wesfarmers share price.

Wesfarmers already has exposure to a number of different industries, with operations in chemical manufacturing, mining, and (of course) retail with its Bunnings, Officeworks and Kmart chains. So the addition of API would arguably broaden Wesfarmers’ operations even further.

With all of these very impressive returns from this company, many investors might be wondering, is there still gas left in the tank for the Wesfarmers share price? Can it go higher from here?

Is the Wesfarmers share price a buy today?

One broker who still sees some upside for Wesfarmers is investment bank Goldman Sachs. Goldman currently has a ‘buy’ rating on Wesfarmers shares, with a 12-month share price target of $59.70. That implies a future potential upside of 1.2% (not including dividend returns).

Goldman thinks the potential API acquisition could be a positive for the company. It noted “the business (API) would offer WES exposure to another staple retailing business”. Albeit one that “would be a relatively small addition to the group”.

Other than that, Goldman takes note of Wesfarmers’ “extremely strong balance sheet” and earnings potential for this rating.

At the current Wesfarmers share price, the company has a market capitalisation of $66.95 billion, a price-to-earnings (P/E) ratio of 35.6, and a trailing dividend yield of 2.79%.

The post Why this broker thinks the Wesfarmers (ASX:WES) share price is in the buy zone appeared first on The Motley Fool Australia.

Should you invest $1,000 in Wesfarmers right now?

Before you consider Wesfarmers, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Wesfarmers wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of May 24th 2021

More reading

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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