The Wesfarmers Ltd (ASX: WES) share price climbed 18% in FY23, significantly outperforming the S&P/ASX 200 Index (ASX: XJO) which rose by around 10%.
Wesfarmers is the company that owns Bunnings, Kmart, Officeworks, Target, Priceline, and several industrial businesses.
Over the past 12 months, markets have been highly volatile, with both inflation and interest rates now significantly higher.
The Wesfarmers share price started the 2023 financial year at $42.15 and finished it at $49.34. In between, it has seesawed as investors took into account the effects inflation and higher interests would have on the economy, households, and Wesfarmers’ earnings.
Wesfarmers demonstrates strength
In the first half of FY23, the company showed ongoing good performance, with revenue — excluding Wesfarmers Health — up 11.4% to $19.78 billion. Earnings before interest and tax (EBIT) rose 13.4% to $2.16 billion and earnings per share (EPS) increased 14% to $1.22.
The company also reported that operating cash flow jumped 26.7% to $1.97 billion, while the interim dividend was increased by 10% to 88 cents per share. Of course, growth of earnings and the dividend is a positive for the Wesfarmers share price.
Indeed, every main division reported earnings before tax (EBT) growth, though Bunningsâ growth was only 1.5%.
Considering the bumper growth the company reported during the COVID-19 years, it was particularly impressive the company was able to achieve ongoing growth.
Wesfarmersâ boss has suggested multiple times that its businesses like Bunnings and Kmart can offer âgreat valueâ for shoppers, which may be more attractive in this era of tightening finances.
In the first five weeks of the second half of FY23, the company said that retail trading had been âbroadly in line with growth reported for the first halfâ.
Acquisitions
The business has been busy making acquisition plays in the healthcare space to expand its scale and diversify its operations. Ongoing growth here could also help the Wesfarmers share price.
After buying the Australian Pharmaceutical Industries (API) business, it also bought the InstantScripts business for $135 million. At the time, this was described as a leading telehealth business.
At the end of FY23, it entered into a takeover deal with Silk Laser Australia Ltd (ASX: SLA) for $3.35 per share, putting the equity value of the business at $180 million.
Wesfarmers share price valuation
Investor expectations about earnings can be a significant influence on where a company’s valuation is.
According to Commsec, analysts are expecting Wesfarmers to generate $2.17 earnings per share (EPS) in FY23. The Wesfarmers share price was valued at 23x FY23âs estimated earnings.
