---
endpoint: analytics
pattern: Consumer
status: done
latency_ms: 188594
conversation_id: d2dc5167-fd84-4732-a2d3-b2e3dd46d3e3
citations: 0
created: 2026-05-31 20:12:03Z
---

# What is the investment thesis for Wesfarmers in the current market environment?

# Wesfarmers (ASX: WES) — Investment Thesis in the Current Market Environment

**Important Source Note:** The latest dedicated CLSA research on Wesfarmers in the internal RMS archive is dated March 2025 (Bunnings investor briefing review) and February 2025 (1H FY25 result). The public-market ticker "WES" on transcripts/filings collides with **Western Midstream Partners** (NYSE-listed US midstream MLP) — those chunks are not Wesfarmers and were excluded. Coverage below is grounded in CLSA's internal Wesfarmers single-stock reports.

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## Bottom line — CLSA's stance

| Item | Latest CLSA View |
|---|---|
| **Rating** | **HOLD** [3] |
| **Price Target** | **A$70.10** (reduced from A$73.10 to "mark the multiple to market") [3] |
| **Implied TSR** | ~0% — "we stick with a Hold rating" [3] |
| **Valuation Stance** | Trading **>2 standard deviations above** historical relative PE; "can continue to trade beyond its fundamental value" [2][8] |

CLSA's framing is a **quality-but-expensive** stock: management, asset mix, and execution all deserve a premium — but the market has already paid for it.

---

## 1. The Core Investment Thesis (Bull Case)

### 1.1 Quality portfolio of best-in-class price-leader retail formats
CLSA's headline thesis: *"We like Wesfarmers' management, strategy, stable of quality retail businesses and longer-term growth options. Bunnings, Kmart and Officeworks are all price leaders in their respective categories"* [1]. Those three franchises collectively contribute an estimated **88% of FY25 group earnings** [9], so the value of the stock is overwhelmingly a function of how those three trade through the cycle.

### 1.2 Bunnings — the crown jewel with a runway
- Bunnings ANZ is the single largest segment: **A$19.5bn FY25 CL revenue / A$2.47bn EBIT** [11].
- Addressable market: **A$110bn** ("Home, Living & Building Environments"), implying Bunnings' current share is only **~18%** — and Bunnings continues to redefine its TAM (e.g., expansion into the A$1.5bn Automotive category) [4].
- Average **2% p.a. retail space growth** over the past five years, with guidance of 1–2% p.a. over the next five [4].

### 1.3 Productivity-led margin protection (not expansion)
Technology investments at Bunnings have already delivered:
- **3.4m hours saved** through improved rostering since 2020
- Net Promoter Score lifted to **67 (from 54)**
However, CLSA flags this should be modeled as **revenue growth / brand strength** rather than further EBIT-margin expansion [5].

### 1.4 Kmart — the standout performer
At 1H25, **Kmart Group EBIT was up 7% YoY** (vs Bunnings +3%) — Kmart has been the most consistent outperformer in the portfolio [2][10].

### 1.5 Portfolio cleanup / capital discipline
Wesfarmers announced **Catch will cease trading from 4QFY25**, with fulfilment centres transferred to Kmart Group. CLSA estimated a one-off ~A$63m hit (1.5% downgrade to FY25 consensus group EBIT) but views the wind-down as *"a prudent decision"* — and integrating Catch's facilities into Kmart could *"bolster its logistics capabilities, further enhancing Kmart's competitive edge in the growing ecommerce market"* [6].

---

## 2. Earnings Trajectory — Why Quality Compares Favourably

### 2.1 1H FY25 — modest beat
| 1H25 | Actual | Consensus | %Δ Cons | 1H24 | YoY |
|---|---|---|---|---|---|
| Revenue (A$m) | 23,490 | 23,461 | +0.1% | 22,673 | **+3.6%** |
| EBIT (A$m) | 2,299 | 2,254 | +2.0% | 2,195 | **+4.7%** |
| Normalised NPAT | 1,467 | 1,446 | +1.5% | 1,425 | **+2.9%** |
| EPS (adj. diluted) | 129.4 | 127.4 | +1.6% | 125.8 | +2.9% |
| DPS | 95.0 | 94.3 | +0.7% | 91.0 | **+4.4%** |

Source: CLSA, WES, Visible Alpha [10]. EBIT **+5% YoY** and EPS **+3% YoY**, both 2% above Street [2].

### 2.2 Forecast group EBIT trajectory (CLSA)
| A$m | FY23A | FY24A | FY25CL | FY26CL | FY27CL |
|---|---|---|---|---|---|
| Bunnings ANZ | 2,345 | 2,374 | **2,469** | 2,581 | 2,737 |
| Kmart | 772 | 966 | **1,006** | 1,049 | 1,085 |
| Officeworks | 211 | 224 | 231 | 249 | 266 |
| WesCEF (chemicals) | 670 | 441 | 424 | 479 | 634 |
| Health | 50 | 55 | 65 | 145 | 165 |
| **Group EBIT** | **3,847** | **3,961** | **4,067** | **4,515** | **4,933** |

Source: CLSA segment forecasts [11]. The FY26→FY27 acceleration is driven by Bunnings, Kmart and a **WesCEF cyclical recovery**.

### 2.3 Comparative growth
*"Our estimated 1% Eps growth compares favourably to both Coles and Woolworths"* [9] — a key reason the market continues to bid up the stock despite an elevated multiple: Wesfarmers is currently delivering EPS growth where the supermarket peers are not.

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## 3. The Bear Case / Risks

### 3.1 Valuation is the central concern
CLSA's own words: *"the stock is trading >2SD above historic relative PEs"* and *"we believe Wesfarmers can remain 'expensive' for some time yet"* — but the framing of the rating itself is *"Why we are HOLDing onto Wesfarmers"* [2]. The PT cut from A$73.10 to **A$70.10 was driven not by earnings downgrades but by a multiple mark-to-market** [3].

CLSA goes so far as to state: *"We believe Wesfarmers is trading, and can continue to trade, beyond its fundamental value"* [8] — an unusually explicit acknowledgment that the price exceeds intrinsic value.

### 3.2 Concentration risk — retail is the franchise
*"Wesfarmers' retail businesses typically contribute more than 80% of group earnings, with Bunnings and Kmart the most important. General macro environment would create both upside and downside risks to the retail business"* [7]. A retail cycle turn would hit ~88% of earnings.

### 3.3 Smaller divisions disappointing
At 1H25, **WIS (Industrial & Safety)** and **Health** missed consensus. Catch exit costs and weaker-than-expected Health margins drove CLSA's small FY25 EPS downgrade [2]. Health EBIT was revised down from A$104m to A$65m for FY25 (–37.7%) [11].

### 3.4 Macro relative-attractiveness setup
CLSA explicitly frames part of the bull case as **relative**, not absolute: *"with a retail portfolio positioned for the times, supermarkets still arguably out of favour, and falling rates making banks less attractive"* [2] — meaning the WES premium is partly a function of poor alternatives. A re-rating in supermarkets or banks could rotate flows out of WES.

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## 4. Synthesis — Why "Current Market Environment" matters here

The CLSA thesis is best characterized as:

1. **Quality has won.** The market has paid up for Wesfarmers' management, capital discipline (Catch wind-down, Health investment), and best-in-class retail formats.
2. **Bunnings TAM expansion** + **Kmart momentum** + **WesCEF cyclical recovery** support mid-single-digit EBIT growth through FY27 [11].
3. **Valuation is uncomfortable** — >2SD above the historical relative PE [2], but the *relative* environment (supermarket weakness, falling rates pressuring banks) gives flow support [2].
4. **The CLSA rating is HOLD** — the analyst likes the asset but cannot justify Buy at current multiples; PT implies 0% TSR [3].

For investors approaching this name today: the thesis works **if** you are willing to underwrite a multiple that, on CLSA's own framing, sits beyond fundamental value [8]. The catalysts to break the HOLD either way are (i) acceleration/deceleration in Bunnings comp sales, (ii) Kmart's ability to sustain its EBIT outperformance, and (iii) any reversal in the relative trade vs. Coles/Woolworths/banks.

---

**Caveats on freshness**: The latest dedicated WES single-stock notes in the internal CLSA archive are dated **February 20, 2025** (1H FY25 result) and **March 27, 2025** (Bunnings investor briefing). WES is also referenced in CLSA Australia Strategy weekly wraps through late June 2025, but those are portfolio-level pieces with no updated single-stock thesis. For an updated view incorporating 2H FY25 results or any FY26 commentary, fresher coverage would need to be sourced.

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**Sources**
[1] Wesfarmers — Bunnings Investor Briefing review (Investment Thesis) — CLSA (27 Mar 2025) — 607954184LinqAlpha.PDF
[2] Wesfarmers — 1H25 Result, "Why we are HOLDing onto Wesfarmers" — CLSA (20 Feb 2025) — 607951170LinqAlpha.PDF
[3] Wesfarmers — Bunnings Investor Briefing review (Building better, A$70.10 PT, HOLD) — CLSA (27 Mar 2025) — 607954184LinqAlpha.PDF
[4] Wesfarmers — Bunnings A$110bn TAM, 18% share, Automotive expansion — CLSA (27 Mar 2025) — 607954184LinqAlpha.PDF
[5] Wesfarmers — Technology-driven productivity (3.4m hours saved, NPS 54→67) — CLSA (27 Mar 2025) — 607954184LinqAlpha.PDF
[6] Wesfarmers — Catch wind-down from 4QFY25 — CLSA (21 Jan 2025) — 607948619LinqAlpha.PDF
[7] Wesfarmers — Investment risks (>80% earnings from retail) — CLSA (21 Jan 2025) — 607948619LinqAlpha.PDF
[8] Wesfarmers — "Trading beyond fundamental value" valuation commentary — CLSA (20 Feb 2025) — 607951170LinqAlpha.PDF
[9] Wesfarmers — CLSA forecast changes; Bunnings/Kmart/Officeworks = 88% of FY25 earnings — CLSA (20 Feb 2025) — 607951170LinqAlpha.PDF
[10] Wesfarmers — 1H25 result table (CLSA vs Consensus vs pcp) — CLSA (20 Feb 2025) — 607951170LinqAlpha.PDF
[11] Wesfarmers — Segment forecast changes (FY25–FY27 EBIT bridge) — CLSA (27 Mar 2025) — 607954184LinqAlpha.PDF

