Wesfarmers Earnings: Cautious Consumers and Lower Commodity Prices Make for Muted Earnings Growth

We maintain our AUD 42 fair value estimate for shares in wide-moat-rated Wesfarmers. The conglomerate’s fiscal 2023 NPAT of AUD 2.465 billion was merely 3% below our estimate, and our longer-term estimates are largely unchanged. Our fiscal 2024 EPS estimate of AUD 2.23 implies earnings growth of 2%, weaker than the 5% achieved in fiscal 2023. At current prices, shares screen as overvalued versus our intrinsic assessment. Also, considering the mid-single-digit compounded earnings growth Wesfarmers generated in the past three years, and our outlook for similar muted earnings growth in the near term, a price/earnings ratio of 23 looks expensive. The board declared fully franked dividends of AUD 1.91 per share in fiscal 2023. We forecast the dividend to be maintained at AUD 1.91 per share in fiscal 2024, fully franked, offering a yield of 3.8% at current share prices or 4.5% at our fair value estimate.