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On Thursday, UBS analyst Shaun Cousins upgraded Wesfarmers Ltd. (WES:AU) (OTC: WFAFF) stock from Sell to Neutral and raised the company’s price target from AUD69.00 to AUD76.00. The revision reflects a more positive outlook on the company’s future performance, particularly focusing on the potential sales growth drivers for Bunnings, Wesfarmers’ home improvement and outdoor living retail chain.
Cousins noted that slowing growth at Bunnings has been a point of concern for investors. However, he identified multiple drivers of sales growth that are capital light, which he expects will be highlighted during the upcoming Bunnings investor day in March. Cousins emphasized that the execution of these growth drivers will be crucial for the company.
The analyst projected that Wesfarmers will achieve above-market like-for-like (LFL) sales growth by the fiscal year 2026, estimating a 6.0% increase compared to the market’s expectation of 3.8%. This growth is anticipated to support a sustained premium price-to-earnings (P/E) multiple for Wesfarmers compared to its historical average.
The UBS analyst further elaborated on the potential for expanding return on capital (ROC), which could play a role in maintaining the company’s valuation premium. The upgrade to Neutral from Sell indicates a shift in the analyst’s view, suggesting that Wesfarmers’ stock may now be more appropriately valued given the expected sales growth and ROC expansion.
Investors and market watchers will likely look forward to the detailed insights and strategic plans that will be presented at the Bunnings investor day, as these could provide further clarity on the company’s trajectory and the feasibility of the anticipated growth. Wesfarmers’ management’s ability to execute the identified growth drivers will be a key factor in realizing the analyst’s projections.
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