Wesfarmers: Can They Weather the Storm?

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Australian conglomerate Wesfarmers has its trump card against rocketing interest and inflation rates.

Those who own consumer discretionary stocks in the S&P/ASX 200 Index (ASX: XJO) are probably aware that increasing inflation and interest rates can be risky for businesses in this industry. However, Wesfarmers Ltd. stock (ASX: WES) may be in an excellent position to avoid significant effects.

“Wesfarmers has always been a defensive stock, but with its recent share price performance, it is now looking like an attractive proposition,” said Morningstar analyst Chris Kallos.

“The company has several things going for it, including its defensive earnings mix, which is tilted towards food and liquor (70 per cent of total sales), and its large shareholding in Coles Group Ltd (ASX: COL).”

Wesfarmers’ other notable businesses include Bunnings Warehouse, Officeworks, Target and K

Wesfarmers’ stock price is currently $43.34, up 0.14% from its previous close. To provide some context, it should be noted that the S&P/ASX 200 Index (ASX: XJO) has declined by 1.98%, while the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) has fallen by 0.68%.

Buyers do not prioritize buying discretionary items or unnecessary products that may be viewed as needed by people with purchasing power. Yet, due to its diversified business operations, Wesfarmers’ retail brands like Kmart, Officeworks, and Bunnings could act as an economic shield against this inflationary challenge.

Bunnings_Warehouse

Specifically, despite people trying to keep their purses, home development is still considered an investment. As a result, Bunnings, an Australian DIY household ware, continues to thrive in the market, becoming Wesfamers’ saving grace. Bunnings have contributed $2.2 Billion in pre-tax earnings from the previous fiscal cycle. This accounts for a 0.9% YoY improvement amid the onset of the lockdowns caused by CoViD-19.

Also, pricing power exists, a characteristic that is frequently elusive but could support Wesfarmers’ earnings. As per The Motley Fool writer Mitchell Lawler, the company uses its pricing power to protect itself from inflationary risks. 

Also, Wesfarmers’ product quality and safety initiatives are fueling them to be one of the trusted companies in Australia. 

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