Ahead of Tesco PLC's (LSE:TSCO) post-festive update, Goldman Sachs (NYSE:GS) has predicted the grocer's shares could benefit in the new year after recent positive data seen in the UK grocery sector.
Signs of easing inflation, falling energy prices and changes to business rates all point towards a positive outlook for the sector, according to the investments bank, which reiterated a 'buy' rating for Tesco, which has a trading update scheduled tomorrow.
Tesco provides “more upside” potential with its current valuation “compelling”.
Goldman added that its optimism from recent data “is finely balanced as our analysis still suggests pricing strategies are discounter focused”.
Indeed, the bank suggested that discounters like Aldi and Lidl “continue to inflate ahead of the market” but are not seeing accelerating market share gains to complement this.
Among other City views on the UK's largest supermarket group ahead of the big season update, Jefferies predicted “an upbeat Christmas reporting season” but only rated the shares a ‘hold’ earlier this week, with a share price target of 260p.
“A resilient third quarter and a good Christmas is what we reflected in our forecast for UK like for like growth,” Jefferies said, expecting Tesco to repeat this year's earnings guidance of between £2.4bn and £2.5bn before tax, while 2023-24 would see “a broadly flat profit picture”.
Like many retailers, Tesco has looked to reduce costs amid higher prices sparked by rising energy costs seen in 2023.
Reports emerged in late December that it would axe fresh food counters as part of its money saving efforts.