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The S&P/ASX 200 Index (ASX: XJO) is on course to end the week on a high. In afternoon trade, the benchmark index is up 0.3% to 7,539.3 points.

Four ASX shares that are rising more than most today are listed below. Here’s why they are climbing:

Incitec Pivot Ltd (ASX: IPL)

The Incitec Pivot share price is up 5% to $2.91. This morning, the agricultural and industrial chemicals company announced a $500 million return to shareholders. This comprises a $0.1557 per share equal capital reduction and an unfranked special dividend of $0.1017 per share. This return follows the sale of the Waggaman ammonia manufacturing facility in Louisiana to CF Industries Holdings Inc (NYSE: CF) at the end of last year.

Mineral Resources Ltd (ASX: MIN)

The Mineral Resources share price is up 5% to $58.22. This follows the release of the mining and mining services company’s quarterly update. The highlight was the company’s iron ore shipments, which were up 23% quarter on quarter to 4.8Mt. This was achieved with an average quarterly realised price of US$119 per tonne. Management also revealed that its Wodgina, Mt Marion, and Bald Hill lithium operations are still profitable at current prices.

Patriot Battery Metals Inc (ASX: PMT)

The Patriot Battery Metals share price is up 11% to 82 cents. This morning, the lithium developer announced the appointment of Ken Brinsden as its new CEO. Brinsden previously took Pilbara Minerals Ltd (ASX: PLS) from the development phase to one of the world’s biggest lithium producers.

ResMed Inc. (ASX: RMD)

The ResMed share price is up 7.5% to $28.77. Investors have been buying this sleep treatment company’s shares after it released a second quarter update that smashed expectations. Goldman Sachs notes that that ResMed’s “EBIT/EPS beat +6%/+4% as gross margins improved further in 2Q (+90bps) and SG&A intensity declines once more.”

The post Why Incitec Pivot, Mineral Resources, Patriot Battery Metals, and ResMed shares are racing higher appeared first on The Motley Fool Australia.

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More reading

• This ASX 200 share is surging 5% after announcing a $500 million return to shareholders
• ResMed share price jumps almost 7% on stellar quarterly performance
• ResMed shares on watch after smashing Q2 expectations
• 5 things to watch on the ASX 200 on Thursday
• 2 ASX 200 shares to buy in 2024 and hold for the next 10 years

Motley Fool contributor James Mickleboro has positions in ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The market is punishing the Tesla Inc (NASDAQ: TSLA) share price in after-hours trading. Shares in the electric vehicle company are down 6% to US$195.38 following the posting of its fourth-quarter results.

While expectations were low heading into earnings, figures for the latest quarter fell below the forecasts. With the impacts of price cuts on full display, investors are deciding to put the selling pressure on.

The sliding price adds to a 16.4% decline in Tesla’s share price since the beginning of the year.

Price cuts slash Tesla share price

Wall Street analysts hoped to see total revenue of US$25.7 billion in Q4. The figure would represent a modest increase of 5.9% from the prior corresponding period. Instead, Tesla landed a lesser US$25.2 billion, growing the top line by 3% year-on-year.

The company’s total revenue can be broken into the following:

• Automotive revenues — US$21.56 billion, up 1%
• Energy generation and storage revenue — US$1.44 billion, up 10%; and
• Services and other revenue — US$2.17 billion, up 27%

Adding to the pain, Tesla’s gross margin weakened further to 17.6% compared to 23.8% a year ago. This margin softness has coincided with a significant fall in lithium prices — one of the major cost inputs in the company’s vehicles.

On a positive note, the operating margin moved in the right direction, improving to 8.2% from 7.6% in the previous quarter. Yet, the incremental improvement is not enough to electrify the Tesla share price today.

A couple of inhibitors to revenue were named in the presentation. Firstly, the reduced vehicle average selling price, a byproduct of several price cuts over the past year. And secondly, lower full self-driving revenue recognition.

Earnings were another disappointment for Wall Street, falling 40% to 71 US cents per share in Q4. Increased expenses associated with AI and research and development weighed on earnings. In addition, ramping up production of Tesla’s Cybertruck (pictured above) ate into profits.

Slower road ahead

Another deadweight hanging from the Tesla share price could be the commentary on vehicle production growth for 2024.

In the outlook, it was said, “In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next-generation vehicle at Gigafactory Texas.”

Total production increased 35% to 1.845 million vehicles in 2023.

The post Tesla share price screeches 6% lower as vehicle growth hits speed bump appeared first on The Motley Fool Australia.

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More reading

• Automation era: Why I’m buying more Tesla shares despite margin decline

Motley Fool contributor Mitchell Lawler has positions in Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Sayona Mining Ltd (ASX: SYA) share price is having a tough finish to the week.

In morning trade, the lithium miner’s shares are down 9% to 4 cents.

Why is the Sayona Mining share price sinking?

Investors have been flooding to the exits today after the company announced an operational review of North American Lithium (NAL) operation in collaboration with its joint venture partner.

According to the release, the operational review is seeking to optimise NAL’s cost structure in response to rapidly changing conditions in the global lithium market.

The review will be focused on opportunities to reduce the operation’s cost base, manage cash flow, and preserve the Quebec-based operation’s financial sustainability in a challenging market environment.

Sayona Mining expects to complete the review by the end of the first quarter of calendar 2024 and will announce the outcome to its shareholders and other stakeholders.

Interim CEO, James Brown, revealed that the plan is to keep operating if possible. He said:

This review of our Quebec operations is focusing on reducing our cost base, enhancing productivity and improving Sayona’s ability to continue to produce lithium throughout the market cycle.

As the only operating hard rock lithium mine in North America, NAL is well positioned to remain a strategic source of lithium for the North American battery and EV market. While current market conditions are challenging, we are confident that the long-term outlook for lithium remains positive as the energy transition gains momentum and the shift to an electrified world continues.

In addition, as part of the review, the CEO of its Quebec subsidiary Sayona Inc, Guy Belleau, has departed his role with immediate effect after approximately one year at the helm.

Sayona Mining’s Chief Operating Officer for Quebec, Sylvain Collard, will assume direct management of these operations, reporting to Mr Brown in Australia.

The Sayona Mining share price is now down 86% over the last 12 months.

The post Why is the Sayona Mining share price crashing 9% today? appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• These are the 10 most shorted ASX shares
• Could the Sayona share price double in 2024?
• Why Chalice Mining, Nuix, Pilbara Minerals, and Sayona Mining shares are falling
• These are the 10 most shorted ASX shares

Motley Fool contributor James Mickleboro 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Incitec Pivot Ltd (ASX: IPL) shares are having a strong finish to the week.

In morning trade, the ASX 200 agricultural and industrial chemicals company’s shares are up 5% to $2.91.

Why is this ASX 200 share charging higher?

The catalyst for this strong gain has been news that Incitec Pivot is returning $500 million to shareholders.

This return follows the sale of the Waggaman ammonia manufacturing facility in Louisiana to CF Industries Holdings Inc (NYSE: CF) at the end of last year.

According to the release, the ASX 200 share intends to return the $500 million via two methods.

The first is a $0.1557 per share equal capital reduction, which equates to a total of approximately $302 million in aggregate.

The second is an unfranked special dividend of $0.1017 per share, which totals approximately $198 million.

Combined, this equates to a 25.74 cents per share return, which is the equivalent of an 8.8% return at current prices.

What’s next?

The company advised that it expects the Australian Taxation Office (ATO) to issue a Class Ruling following completion of the capital reduction and payment of the dividend.

It expects no part of the capital reduction should be treated as a dividend for Australian taxation purposes. Instead, subject to the ATO’s Class Ruling, the ASX 200 share expects that for shareholders who hold their shares on capital account for Australian income tax purposes, the cost base of each share will be reduced by $0.1557 per share for the purposes of calculating any capital gain or loss on the ultimate disposal of that share for Australian income tax purposes.

An immediate capital gain would arise for shareholders where their cost base of any share is less than $0.1557.

The Incitec Pivot Board also advised that it is satisfied that the capital reduction is fair and reasonable to shareholders as a whole and does not materially prejudice its ability to pay its creditors.

The post This ASX 200 share is surging 5% after announcing a $500 million return to shareholders appeared first on The Motley Fool Australia.

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More reading

• One ASX 200 dog stock of 2023 tipped to rebound in 2024

Motley Fool contributor James Mickleboro 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Fortescue Metals Group Ltd (ASX: FMG) share price is marching higher today.

Shares in the S&P/ASX 200 Index (ASX: XJO) mining stock closed yesterday trading for $28.39. In morning trade on Thursday, shares are swapping hands for $29.01 apiece, up 2.2%.

For some context, the ASX 200 is up 0.4% at this same time.

Atop another 2.4% overnight lift in the iron ore price to US$135.15 per tonne, the Fortescue share price looks to be getting a boost from the company’s quarterly update for the three months to 31 December (Q2 FY 2024).

Fortescue share price gains on near-record iron ore shipments

The Fortescue share price is in the green today after the company reported 48.7 million tonnes (Mt) of iron ore shipments for the quarter.

This brought iron ore shipments to 94.6Mt for the first half of the 2024 financial year (H1 FY 2024). That’s the second highest first half-year shipment in the ASX 200 miner’s history.

Fortescue reported it received an average revenue of US$116/dry metric tonne (dmt) for its Pilbara Hematite (higher grade iron ore).

On the cost front, the miner’s Pilbara Hematite C1 cost (direct cost) was US$17.62/wet metric tonne (wmt) over the three months. This could be offering some tailwinds for the Fortescue share price, as C1 costs were 2% less than the prior quarter.

Other highlights of the quarter included the launch of Fortescue Capital, a green energy investment accelerator platform, which is headquartered in New York City.

And the ASX 200 miner shipped its first product from the Belinga Iron Ore Project in Gabon. That marked the first time Fortescue has exported iron ore from any port outside of Australia.

Turning to the balance sheet, Fortescue’s cash balance was US$4.7 billion at 31 December 2023. That’s up from US$3.1 billion at 30 September 2023.

Total capital expenditure and investments for the quarter came in at US$759 million, bringing total capital expenditure and investments for H1 FY 2024 to US$1.5 billion.

Net debt fell to US$600 million from US$2.2 billion on 30 September 2023.

What did management say?

Commenting on the results that look to be supporting the Fortescue share price today, CEO Dino Otranto said:

We continue to deliver strong operational performance while making tangible progress towards our ambitious decarbonisation and green energy targets…

Demand for Fortescue’s suite of iron ore products remains strong and our entry into the higher-grade segment of the market through Iron Bridge has been well received with our second magnetite shipment during the quarter…

Our energy business marked a significant milestone, with final investment decisions announced for green hydrogen projects in Australia and the USA.

What’s ahead for the ASX 200 miner?

Looking at what could impact the Fortescue share price in the months ahead, the ASX 200 miner maintained its guidance for FY 2024 total shipments of 192Mt to 197Mt.

It expects C1 cost for Pilbara Hematite of US$18 to US$19/wmt, slightly higher than the quarter just past.

Metals capital expenditure is forecast to be in the range of US$2.8 billion to US$3.2 billion.

And Fortescue forecasts energy net operating expenditure of around US$800 million, with capital expenditure and investments of some US$500 million.

Fortescue share price snapshot

With today’s lift factored in, the Fortescue share price is up an impressive 29% over the past 12 months.

Shares have gained 31% over the past three months.

The post Fortescue share price lifts off amid near-record iron ore shipments appeared first on The Motley Fool Australia.

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More reading

• Why this broker thinks you should be selling Fortescue shares
• ASX 200 mining stocks underperforming as Andrew Forrest shutters WA nickel mines
• How I invest and make money from ASX mining shares
• 2024 could be the biggest year in history for the Fortescue share price. Here’s why!
• 3 ASX shares I think are ready for dividend hikes in 2024

Motley Fool contributor Bernd Struben 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The ResMed Inc (ASX: RMD) share price has come flying out of the gates on Thursday.

In morning trade, the sleep treatment company’s shares are up 6.5% to $28.50.

ResMed share price charges higher on strong update

Investors have been fighting to get hold of the company’s shares today after it delivered a second quarter result well ahead of expectations.

As we covered here earlier, ResMed reported a 12% increase in revenue to US$1.2 billion, a 20% lift in non-GAAP operating profit, and non-GAAP diluted earnings per share of US$1.88.

This was ahead of the consensus estimates of revenue of US$1.15 billion and earnings per share of US$1.78.

Commenting on the strong quarter, ResMed’s CEO, Mick Farrell, said:

Our second-quarter fiscal year 2024 results reflect strong double-digit growth across our combined device, masks and accessories, and residential care software businesses, as well as cost discipline to support an acceleration in profitability.

Broker reaction

The team at Goldman Sachs was pleased with the result. Commenting on its top line growth, the broker said:

1Q24 revenue of $1,163m was up +11% cc, a deceleration from +15% in 1Q24, but +2% ahead of consensus. As was the case in the last quarter, US growth of +9% exceeded once more by a stronger RoW growth of +12%. SaaS grew +24% (in-line), largely reflective of the Medifox Dan contribution, but also organic growth.

Goldman was also pleased with ResMed’s earnings, noting that “EBIT/EPS beat +6%/+4% as gross margins improved further in 2Q (+90bps) and SG&A intensity declines once more.”

And while no guidance was provided, the broker highlights that the company is once again stating its belief that GLP-1s like Ozempic are not a threat but actually a positive. It said:

RMD still provides no guidance as expected. Management continues to argue strongly that GLP-1 impacts are positive for: i) patients entering the funnel; and ii) adherence/resupply rates.

Goldman currently has a buy rating and $32.00 price target on the ResMed share price.

The post ResMed share price jumps almost 7% on stellar quarterly performance appeared first on The Motley Fool Australia.

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More reading

• ResMed shares on watch after smashing Q2 expectations
• 5 things to watch on the ASX 200 on Thursday
• 2 ASX 200 shares to buy in 2024 and hold for the next 10 years
• Experts tip very big returns from these outstanding ASX 200 blue chip shares
• 3 things ASX investors should watch this week

Motley Fool contributor James Mickleboro has positions in ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Domino’s Pizza Enterprises Ltd (ASX: DMP) shares are under pressure on Thursday.

In morning trade, the ASX 200 pizza chain operator’s shares are down 22% to $44.67.

Why are Domino’s shares falling?

Investors have been hitting the sell button today in response to a trading update released after the market close on Wednesday.

The ASX 200 share revealed that strong sales growth in Germany, Australia, and New Zealand, as well as a positive operational performance in Europe, have been offset by negative same store sales in Japan, Taiwan, Malaysia and France, which are weighing on the broader business.

This means that same store sales are up 1.3% for the first half, with total sales up 8.8% to $2,139 million.

As for earnings, Domino’s preliminary net profit before tax is expected to be between $87 million and $90 million.

This is down from $104.8 million a year earlier, but higher than the preceding half’s $74.4 million. Though, it is still well short of the consensus estimate of $103 million, which explains why Domino’s shares are taking a beating this morning.

Management advised that it is focused on growing weekly orders and franchisee margins, based on successes in ANZ and Germany, and is moving quickly to apply similar approaches in all markets.

Also weighing on Domino’s shares is management’s removal of its guidance for FY 2024. It said:

With improvements still required in H2 to grow order volumes, Domino’s advises any previous guidance for FY24 performance, de facto or otherwise, is no longer in effect.

Broker response

Goldman Sachs wasn’t impressed with the update, nor was it surprised. The broker said:

DMP is our key out-of-consensus Sell within our ANZ consumer/retail coverage, with below consensus earnings forecasts. This profit downgrade supports our thesis that Japan’s elevated competition post COVID is a more structural headwind. On the back of this, we cut our FY24/25/26 network sales by -4% to -6% and EBIT by -14% to -8%. We now expect FY24 EBIT of A$211mn (+4pct YoY). That said, we increase our FY25e EV/EBIT based SOTP valuation to 22x for ANZ (from 15x), Europe 20x (from 18x), Asia 20x (from 18x) and SE Asia to 18x (from 13x) as we re-base our discretionary coverage to mark-to-market. DMP trades at 40x 2024E P/E vs TP (A$37.5) implied 26x. We expect the market to take this news negatively; reiterate Sell.

The post Why are Domino’s shares sinking 22% today? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Domino’s stock: buy, sell or hold?
• Top brokers name 3 ASX shares to buy next week
• Leading brokers name 3 ASX shares to buy today

Motley Fool contributor James Mickleboro has positions in Domino’s Pizza Enterprises. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Domino’s Pizza Enterprises and Goldman Sachs Group. The Motley Fool Australia has recommended Domino’s Pizza Enterprises. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Liontown Resources Ltd (ASX: LTR) shares have fallen hard this week.

A disappointing update on the Kathleen Valley Lithium Project sent investors to the exits in their droves.

Investors may now be wondering if this is a buying opportunity. Let’s see what Goldman Sachs is saying about the lithium developer.

What is Goldman saying about Liontown shares?

Goldman has been working through the update and appears a touch concerned with the company’s funding predicament following the termination of its $760 million debt package.

Although the broker believes the company can get by on lower funding, how much it requires will come down to where lithium prices trade. It explains:

LTR anticipate working capital/ corporate cost requirements of ~A$150-200mn through ramp up, where on our gradual ramp up profile/spodumene pricing (~US$800/t) we estimate LTR requiring further funding of ~A$200mn (previous target of ~A$460mn in fresh debt). As a downside scenario, a further ~25% decline in our near-term spodumene prices to ~US$600/t would imply a further ~A$300mn may be needed to get to positive FCF in ~CY27, though we expect in this scenario other measures may be utilised to preserve capital (selective/reduced mining, processing ore stockpiles, etc.).

But are its shares a buy?

Goldman is sitting on the fence with its recommendation at present.

Although the broker sees enormous value in Liontown’s shares at current levels, it doesn’t appear willing to put a buy rating on them.

According to the note, it has retained its neutral rating with a target price of $1.45 (from $1.65). This implies potential upside of 54% for investors over the next 12 months. It explains:

Our NAV [net asset value] is down to A$1.36/sh (pre-risking), where LTR is trading at a discount to our revised NAV at ~0.75x and an implied LT spodumene price of ~US$950/t (peer average ~1x & ~US$1,150/t), with a high valuation sensitivity to our LT lithium pricing. However, we see LTR pricing further uncertainty on funding into the possibility of further lithium price declines/volatility, and remain Neutral.

The post Buy, hold, or sell? What is Goldman Sachs saying about Liontown shares? appeared first on The Motley Fool Australia.

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More reading

• Top brokers name 3 ASX shares to buy today
• Why IDP Education, Karoon Energy, Liontown, and Zip shares are falling today
• Here’s the lithium price forecast through to 2027
• Broker tips 70% return for Liontown shares after selloff
• 5 things to watch on the ASX 200 on Tuesday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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ASX growth stocks are a great option for investors looking to grow their wealth. Compounding can help $5,000 grow into $10,000 in less than eight years.

Over the long-term, shares have returned an average of around 10% per year. That doesn’t mean shares will return 10% this year, 10% next year, and 10% in the following year. It could be a 12% return this year, a return of 5% next year, a decline of 7% and then a return of 20%.

That 10% average return is the end result after all of the wars, pandemics, recessions, politicians and so on. Of course, past performance is not a reliable indicator of future returns.

If we can find investments that perform better than 10% per annum, then our portfolios could grow even quicker. Two of the names I’d put my money towards would be the following ideas.

Johns Lyng Group Ltd (ASX: JLG)

Johns Lyng is the ASX growth stock I’ve invested the most money toward over the last few months for my own portfolio. I’ve put my money where my mouth is.

This company describes itself as an integrated building services group, with the core business focused on its ability to rebuild and restore a variety of contents after damage by insured events including impacts, weather and fire.

The company did really well in FY23, growing its revenue by 43.2% to $1.28 billion and growing net profit after tax (NPAT) by 64.3% to $62.8 million.

In FY24, it’s expecting to grow its ‘business as usual’ (BAU) revenue by 18.5% to $1 billion and the BAU earnings before interest, tax, depreciation and amortisation (EBITDA) could grow by 20.1% to $113 million.

It’s growing its exposure to catastrophe work, which is helping diversify and grow earnings. In FY23, catastrophe revenue rose by 125.3% to $371 million. There seems to be a growing number of expensive storms, so this may be an unfortunate tailwind for the business in Australia and the US.

I’m particularly excited by the company’s comments that it can expand into other countries. It has recently expanded into New Zealand, and additional markets could expand its growth potential.

Johns Lyng has also chosen to expand into other related areas such as strata/body corp services as well as electrical, gas and fire safety and compliance. These are currently small divisions but offer the potential for defensive and growing earnings. It can make a lot of bolt-on acquisitions in this area.

According to Commsec, the ASX growth stock is valued at 32 times FY24’s estimated earnings.

Vaneck Morningstar Wide Moat ETF (ASX: MOAT)

This is one of my favourite exchange-traded funds (ETFs) because of the investment style, the returns are just an exciting byproduct. I think it’s an ASX growth stock because of how well it has done.

As the name suggests, it’s focused businesses that have a wide economic moat. A moat describes how easy it is for competitors to ‘invade’. We can think of moats as the competitive advantages.

Competitive advantages can come in many different forms, such as patents, brands, cost advantages and so on. Think of businesses like Visa and Mastercard, they have payment networks that are accepted all over the world, and used by customers globally. They are incredibly hard to compete with.

The MOAT ETF only invests in businesses the Morningstar analyst team thinks have a moat and that is almost certainly going to endure for a decade or two.

Businesses are only added to the portfolio if the analysts think the stock is trading at an attractive price compared to what they think is a ‘fair value’.

These are the sorts of businesses that may be able to outperform when markets fall in a recession – stable businesses may seem less worrisome to investors than financial stocks or speculative businesses.

Past performance is not a guarantee of future returns with any ASX growth stock, but the MOAT ETF has returned an average of 16.7% per annum over the last three years.

The post Got $5,000? These are 2 of the best ASX growth stocks to buy right now appeared first on The Motley Fool Australia.

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More reading

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Motley Fool contributor Tristan Harrison has positions in Johns Lyng Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group, Mastercard, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool Australia has recommended Johns Lyng Group, Mastercard, and VanEck Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Now could be the time to pounce on Wesfarmers Ltd (ASX: WES) shares.

That’s the view of analysts at Goldman Sachs, which have just upgraded the Bunnings owner’s shares.

What is Goldman saying about Wesfarmers shares?

Goldman has been looking at the consumer and housing markets and believes that Wesfarmers is well-positioned to benefit.

In respect to the housing market, the broker said:

More resilient Australian housing outlook with median house prices +8% in CY23 and a further +2%/6% in CY24E/25E, implying higher property transactions/alts & adds to come. We thus raise Bunnings FY24-26e sales by 0-3%, EBIT by +5-13%, with FY24 sales/EBIT to grow +2%/+1%, then accelerate to a +6%/+11% sales/EBIT CAGR in FY25/26 as cost optimizing and digitalization initiatives drive margin expansion.

In addition, Goldman believes that the strong cashflow generated by Bunnings will be able to support other growth opportunities. It adds:

We expect strong A$2.5B-A$3.0B Bunnings annual free cashflow generation to fund new growth platforms including 1) Health and 2) Lithium. With the completion of the SILK Laser acquisition in November 2023, we now expect the Health segment to drive higher growth and profitability from the attractive non-invasive aesthetics industry and switch to a DCF valuation of A$2.2B.

So, with Wesfarmers shares trading at a discount to historical averages, the broker believes that now is the time to invest.

Upgraded to buy

Goldman has upgraded the company’s shares to a buy rating (from neutral) with a price target of $62.90 (from $49.80). This implies potential upside of 9.4% for investors over the next 12 months.

And if you include the 3.3% fully franked dividend yield the broker is forecasting for FY 2024, the total potential return stretches to 12.7%. Goldman summarises:

Our Buy is premised on a buoyant Australian housing market supporting Bunnings resilience and in turn generating strong annual free cashflow of A$2.5B-A$3.0B to fund 2 new high growth and high returns platforms, Health and Lithium, contributing ~9% of EV and enabling FY23-26e group sales/EBIT of ~3%/~8%.

The post Why this broker just upgraded Wesfarmers shares to a buy rating appeared first on The Motley Fool Australia.

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More reading

• 3 no-brainer ASX 300 shares I’d buy right now without hesitation
• Breaking: Wesfarmers share price hits new 52-week high
• I’m buying cheap ASX shares to build my wealth in 2024 and beyond
• Which had the better year in 2023: Telstra, Woodside or Wesfarmers shares?
• The pros and cons of buying Wesfarmers shares right now

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Wesfarmers. 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.

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