In August 2019, Wesfarmers Limited (ASX:WES) announced its latest earnings update, which confirmed that the business endured a significant headwind with earnings falling by -25%. Below is my commentary, albeit very simple and high-level, on how market analysts view Wesfarmers's earnings growth trajectory over the next few years and whether the future looks brighter. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.
Market analysts' prospects for this coming year seems rather subdued, with earnings growing by a single digit 2.8%. The following year doesn't look much more exciting, though earnings does reach AU$2.1b in 2022.
Even though it’s helpful to understand the growth rate year by year relative to today’s level, it may be more insightful evaluating the rate at which the business is growing every year, on average. The pro of this approach is that it removes the impact of near term flucuations and accounts for the overarching direction of Wesfarmers's earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I've appended a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 3.0%. This means that, we can anticipate Wesfarmers will grow its earnings by 3.0% every year for the next couple of years.
For Wesfarmers, I've put together three fundamental aspects you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is WES worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether WES is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of WES? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.