(Sharecast News) – Shore Capital has reiterated its ‘buy’ rating for Tesco after the retail giant’s forecast-beating first half, saying that more upgrades could be possible if the company sustains its strong momentum.
Tesco announced on Wednesday that adjusted retail operating profits would be in the range of £2.6bn-2.7bn this year, up from earlier guidance of £2.6bn, with retail free cash flow expected to rise to £1.8bn-2bn, well ahead of the previous £1.4bn-1.8bn estimate.
Shore Capital said more upgrades could follow if the macro environment continues to improve and Tesco “sustains such recent execution” amidst a “gradually improving UK consumer economic backdrop”.
“Tesco is a very well-oiled machine, pressing all the right buttons around price, assortment, promotion, availability and general service standards. That consistent execution is being noticed by shoppers and supports robust market share performances,” said analysts Clive Black and Darren Shirley.
“In Central Europe, Hungary remains a challenge for Tesco, masking good progress elsewhere, one can hope for a better out-turn in FY25. Overall, we give all credit to management for this delivery.”
The stock trades at 11.1 times current-year earnings, with a “handsome” free cash flow yield of 9.4%, while the two times covered dividend yield is 4.5%.
“Tesco is delivering on our cash compounding investment thesis, for which it deserves credit. On 11x FY24 PER, rating expansion should emerge, maybe substantially so. We happily reiterate our ‘buy’ stance.”
The stock was up 2.3% at 265.6p by 0950 BST.
