Why the Wesfarmers (WES) share price is set to rebound

Posted: 3 September 2021 1:09 pm
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Shares in the owner of Bunnings and Officeworks have declined nearly 9% since FY results on 27 August.

Shares in conglomerate Wesfarmers (ASX: WES) are among the most traded stocks on the ASX on Friday. The stock has been volatile in early trading, rising more than 0.5% before slipping into the red. It was down 0.2% at $57.71 at the time of writing.

Is the WES stock price on the path to recovery?

The Perth-based diversified conglomerate on Friday said it will reopen 24 Bunnings stores in Greater Sydney to retail customers from Monday, as vaccination rates rise in New South Wales.

Australia’s most populous state announced the previous day that 70% of its eligible population had now received at least one coronavirus jab.

Bunnings said its warehouses in the 12 local government areas (LGAs) of concern in the city will only be open for trade customers and for contactless collection of online orders.

“The acceleration of the vaccine rollout and the increase in opportunities for our team to get vaccinated has given us the confidence to re-open our stores in Greater Sydney, with strong COVID-safe protocols in place, including a 1 per 10 metre density limit applied,” Bunnings Managing Director Mike Schneider said.

The reopening of the cash cow hardware business is certainly good news for Wesfarmers investors, because it will go a long way in lifting earnings prospects for the conglomerate. Bunnings contributed nearly 62% of Wesfarmers’ earnings in FY21.

Key to earnings

Wesfarmers shares have slid nearly 9% since the company reported full-year earnings on 27 August. While the conglomerate reported a 40.2% surge in net profit for the year, it had revealed at the time that sales at each of its retail arms had fallen in the first weeks into the 2022 fiscal year.

Bunnings sales were down 4.7% for the first 7 weeks since 1 July largely on the back of the extended lockdowns in New South Wales and Victoria, the country’s 2 biggest states. Kmart and Target sales slid 14.3% in the first 8 weeks.

CEO Rob Scott said the lockdowns were hurting household and business confidence, and restrictions on stores in New South Wales are set to hurt business activity and the group’s trading performance.

The reopening of the Sydney stores will go a long way in stemming the earnings bleed, and should be reflected in the company’s next earnings update. It should also help prop up investor sentiment in the stock that is so far still up 22% over the last 12 months.

Considering buying Wesfarmers (WES) shares?

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