A female broker in a red jacket whispers in the ear of a man who has a surprised look on his face as she explains which two ASX 200 shares should do well in today’s volatile climate
The Wesfarmers Ltd (ASX: WES) share price is treading water today on fresh acquisition rumours.
Shares in the diverse retailing conglomerate are down 0.4% to $65.33. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is up 0.4%.
After a quiet start to the year, word on the grapevine is Wesfarmers might be preparing for its next acquisition. If the gossip is true, it could be one of the company’s largest deals in many years, trumping the $760 million takeover of Australian Pharmaceutical Industries (API) in 2022.
The rumoured $12 billion target
According to The Australian’s Dataroom, Wesfarmers has been evaluating the worthiness of scooping up Ramsay Health Care Ltd (ASX: RHC) for months.
Ramsay Health was founded in 1964 by the late Paul Ramsay. What started as a converted house in Sydney is now a fully-fledged hospital and medical clinic operator spread across 11 countries.
Yet, despite the expansive operations, Ramsay’s profits and share price remain unchanged from a decade ago.
Always searching for an opportune buy, Wesfarmers could be eyeing Ramsay as the next gem in its expanding healthcare collection. In 2022, the conglomerate acquired API — the company behind Priceline pharmacies. Last year, Silk Laser Clinics was rolled into the Wesfarmers health division.
Whether ‘The Wolf of the West’ hopes to eat Ramsay Health whole or pick it apart is unknown at this stage.
Ramsay contains a franchise pharmacy network and 40 in-hospital dispensaries throughout Australia. Furthermore, the company launched an online pharmacy in August last year, which might meld well with Wesfarmers’ InstantScripts — a consultation and script-filling telehealth platform — acquisition.
What might be a worry for Wesfarmers shares?
Wesfarmers set an Australian corporate record in 2007 when it acquired Coles Group Ltd (ASX: COL) for $19.3 billion. Back then, Wesfarmers had a market capitalisation of about $40 billion.
Eleven years later, Coles had become a formidable competitor to Woolworths Group Ltd (ASX: WOW). But not without Wesfarmers pouring $8 billion into its turnaround. After all the effort (and money), the conglomerate spun Coles off at a valuation of… $20 billion.
Some argue the Coles escapade was a prime example of opportunity cost.
Ramsay Health is a similarly large candidate. At $16 billion, it’s roughly 40% of Wesfarmers’ size. More importantly, like Coles, Ramsay could risk dragging Wesfarmers’ margins downward.
As shown below, the hospital operator achieved a 1.4% margin for the 12 months ended 31 December 2023. That’s a far cry from the nearly 6% the Bunnings-owner is netting.
The Ramsay Health share price is basking in renewed attention today. At the time of writing, shares are fetching $53.00, up 3.8% from yesterday.
Wondering where you should invest $1,000 right now?
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes could be the ‘five best ASX stocks’ for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now…
See The 5 Stocks *Returns as of 1 February 2024
More reading
Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Coles Group and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
News Related-
High court unanimously ruled indefinite detention was unlawful while backing preventive regime
-
Cheika set for contract extension as another Wallabies head coaching candidate slips by
-
Analysis-West's de-risking starts to bite China's prospects
-
'Beyond a joke' Labor won't ensure PTSD protections: MP
-
Formula One season driver ratings: Lando Norris shines as Max Verstappen nears perfection
-
Catalina golfer Tony Riches scores Guinness World Record four holes in one on same hole
-
Florida coach Billy Napier fires assistants Sean Spencer, Corey Raymond with expected staff shakeup ahead
-
Rohingyan refugee NZYQ accidentally named in documents published by high court
-
Colorado loses commitments of 2 more high school recruits
-
Queensland Health issues urgent patient safety alert over national bacteria outbreak
-
Townsville Community Pantry 'distressed' by fruit, vegetable waste at Aldi supermarket
-
What Is The Beaver Moon And What Does It Mean For You?
-
Labor senator Pat Dodson to resign from politics due to health issues
-
Hamas releases 11 more hostages, as Israel agrees to extend ceasefire