Tesco PLC (LSE:TSCO) is the preferred option of the UK’s two remaining listed grocery retailers, Barclay’s analysts argue, trumping J Sainsbury PLC (LSE:SBRY) to the top spot.
Following results from the pair in recent weeks, Barclays said it was time to compare.
Tesco penned a 4% rise in free cash flow to £3.75bn, while Sainsbury’s recorded a 24% growth to £635mln.
Underlying earnings before interest, taxes, depreciation, and amortization (EBITDA) sat at £4.25bn for Tesco and £2.14bn at Sainsbury’s meanwhile.
“We tend to see more upside potential in Tesco’s share price,” analysts noted, and “find that Tesco is generally cheaper on earnings-based measures”.
“Sainsbury generally offers a slightly higher free cash flow yield” though, they added.
Barclays calculated that Tesco was now trading at an 11% discount to Sainsbury’s, though the latter had a 0.2 percentage point advantage on its three-year average annual free cash flow.
Classing both stocks as ‘overweight,’ Barclays confirmed each supermarket was “performing relatively well in market share terms” and that there was potential for “sentiment on the UK grocery sector [to] improve later in 2023 as food inflation reduces”.
Barclays reiterated price targets for both, predicting 300p for Sainsbury’s and 320p for Tesco, up 6.5% and 14% respectively on Friday’s opening.