Wesfarmers's Premium Valuation Rests on Bunnings and Kmart Being Unkillable

A strategy day showcasing AI and growth ambitions kept the re-rating going, even as some fund managers flag a housing-linked growth risk ahead.

2 Oct 2026 · 4 min read

Wesfarmers has become the market's go-to safe pair of hands, so richly valued that even its own long-standing underweight holders keep losing money betting against it, on the argument that Bunnings and Kmart are simply businesses that cannot be killed regardless of what the economy throws at them.

The un-killable business thesis

First Sentier Investors likened Wesfarmers to a reliable centre back under chief executive Rob Scott, arguing the pandemic proved supermarkets and Bunnings are two kinds of businesses that simply cannot be killed, making the group a reliable anchor regardless of what conditions bring. Antares Capital, without owning the stock, said Wesfarmers continued to be supported by its reputation as a high-quality defensive name attracting investors seeking stability. Wilson Asset Management called its own position a tactical buy while openly admitting the stock is expensive, arguing that with banks having fallen hard and resources out of favour, money is flowing into a small number of names like Wesfarmers on relative value and momentum alone.

A strategy day that re-rated the long-term growth story

Vinva Investment Management said Wesfarmers's 10 June Strategy Briefing Day detailed accelerated AI adoption across Bunnings and Kmart, concrete plans to grow Bunnings' addressable market, and an ambition to double the size of Kmart's business, driving a sharp re-rating of the group's long-term earnings outlook. Pendal Group added specifics: Kmart has launched a new homewares format called KHome, and Officeworks is cutting costs while investing in its technology range to better compete with JB Hi-Fi and Harvey Norman. Vertium Asset Management noted Bunnings and Kmart are capturing trade-down traffic from cost-conscious shoppers, with AI and digitisation efficiency gains helping offset a 4.75 percent award wage increase from the Fair Work Commission, though the fund continues to view Wesfarmers as too expensive despite its dominant category positions.

Concrete plans to grow Bunnings' addressable market, and Kmart's ambition to double its business, driving a sharp re-rating of the group's long-term earnings outlook.

— Vinva Investment Management, Quarterly Report, June 2026

Lithium prices are quietly doing some of the work too

Perpetual Asset Management said a bigger driver of Wesfarmers's June share price strength than the strategy day itself was positive earnings revisions from sell-side brokers, driven by the mark-to-market impact of higher spodumene prices on the WesCEF chemicals, energy and fertilisers division. Yarra Capital Management made a similar point, noting an improving lithium backdrop as a tailwind alongside the retail business, even as it kept an underweight position given Wesfarmers trades on a 32.9 times FY27 price to earnings multiple against a 23.2 times ten-year average, for a modest 2.7 percent dividend yield. Solaris Investment Management and Vertium Asset Management both maintained underweight positions, citing stretched valuation and ongoing concerns around the chemicals and fertilisers division specifically.

Value investors say the multiple has gotten ahead of the growth

Investors Mutual Limited pushed back hardest in July, acknowledging on a 38 times price to earnings multiple that no one would dispute Kmart and Bunnings are great brands with scale and strong management, together making up around 85 percent of group earnings, but arguing the growth opportunities from here should moderate. It pointed out around 80 percent of Bunnings' sales connect to housing churn, and that clearance rates at capital city property auctions had fallen below 50 percent in June, the lowest level since April 2020, a leading indicator it sees pointing to slower growth ahead.

Bunnings 80% of the sales is connected to housing churn. And we've just seen clearance rates fall below 50% in capital cities in June, it was the lowest since April 2020. That's a leading indicator that growth is going to be harder to find.

— Investors Mutual Limited, Interview, July 2026

August's result: steady today, a little more expensive tomorrow

Pendal Group described Wesfarmers's FY26 result as in line with consensus but showing slowing sales growth through the second half, with weaker than expected cash flow due to higher working capital tied to elevated retail and chemicals inventory. FY27 capital expenditure guidance also came in higher than expected on supply chain and store investment, which flows through to higher interest costs and roughly 2 percent downgrades to FY27 earnings estimates, even as retail conditions are expected to stay relatively stable into the new financial year.

What fund managers say they are watching next is whether Investors Mutual's housing-churn warning signal actually flows through to Bunnings' sales, how quickly Kmart's ambition to double its business and Bunnings' addressable market expansion translate into delivered earnings, where lithium prices head from here given their outsized recent influence on sentiment, and whether the higher FY27 capex and interest cost burden keeps chipping away at consensus estimates for a stock that remains priced as though none of that matters.