Are Wesfarmers shares a buy following the ASX 200 giant’s latest earnings result?

A middle-aged woman sits in contemplation over a tablet device considering information about ASX shares and deep in thought.

A middle-aged woman sits in contemplation over a tablet device considering information about ASX shares and deep in thought.The Wesfarmers Ltd (ASX: WES) share price rose after reporting its FY23 half-year result yesterday. There were a number of elements that I liked about the result, though the share price is a separate question.

As a quick reminder, Wesfarmers is the business that owns Kmart, Bunnings, Officeworks, Priceline, Target, and other businesses.

What I liked about the result

Certainly, there were a number of pleasing aspects to the result.

First, overall growth was solid. Total revenue, excluding Wesfarmers Health, saw 11.4% growth. This helped profit growth. Earnings before interest and tax (EBIT) increased 13.4% to $2.16 billion, net profit after tax (NPAT) grew 14.1% to $1.38 billion, and operating cash flow jumped 26.7% to $1.97 billion.

Another positive factor was that cash returns to shareholders were bumped up – the interim dividend went up by 10% to 88 cents per share.

I was expecting Kmart and Target to reveal a good turnaround because the first half of FY22 saw COVID-19 lockdowns, hurting bricks and mortar retailers. With lockdowns no longer happening, Kmart Group managed to grow earnings before tax (EBT) by 114% to $475 million. That was a strong result, considering the uncertain economic times, though Kmart could excel when customers are looking for value.

The performance of other divisions was particularly impressive, in my opinion. Officeworks saw EBT grow by 3.7% to $85 million.

While Bunnings only grew EBT by 1.5% to $1.28 billion, the fact that it achieved any growth is impressive in my opinion. Seeing as Bunnings makes most of the ASX 200 share’s profit, it can have the biggest influence on the Wesfarmers share price. Management noted strong growth from commercial customers and resilient customer demand. Bunnings focused on “delivering great value for customers”.

Bunnings expanded Tool Kit Depot into the east coast of Australia, while a new frame and truss plant was opened in Victoria during the half.

Wesfarmers’ chemicals, energy, and fertilisers division (WesCEF) experienced an earnings jump of 48.6% to $324 million. It’s benefiting from favourable global commodity prices for LPG, ammonia, and related products, together with increased ammonia production and strong plant operating performances.

Mt Holland, Wesfarmers’ lithium project, continues to see progress. It will be very helpful for earnings once it’s completed.

Is the Wesfarmers share price a buy?

Retail trading results at the start of the second half of FY23 showed growth for the ASX 200 share, particularly in areas affected by the Omicron variant.

I think the business has proven over the last three years that it can perform in almost any economic conditions. It sells products that are nearly always in demand, at a price that is winning customers.

The fact that Wesfarmers is continuing to expand its business is very promising for the long term in my opinion. The healthcare sector has long-term tailwinds, such as ageing demographics, so I think it makes sense for Wesfarmers to grow in this area, starting with Priceline and Clear Skincare Clinics.

I think it’s one of the best ASX 200 shares around – it has high-quality businesses, growth potential with each division, and a focus on returns to shareholders. I believe that Wesfarmers shares are a long-term buy. Indeed, Macquarie just increased its target price on Wesfarmers to $56.70, according to reporting by The Australian. That suggests further rises are possible.

The post Are Wesfarmers shares a buy following the ASX 200 giant’s latest earnings result? appeared first on The Motley Fool Australia.

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More reading

Motley Fool contributor Tristan Harrison 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 has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia

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