Tesco PLC (LSE:TSCO) led the FTSE 100 fallers on a buoyant day for the index after JPMorgan moved the food retailer to ‘underweight’ from ‘neutral’.
The investment bank downgraded the sector in September based on disinflation triggering lower like-for-like sales, impacting margins and valuations.
It sees this recurring in 2024/25, sitting around a double digit percentage below the Street EPS consensus.
Underpinning its cautious sector stance, JPM has downgraded Tesco to ‘underweight’ from ‘neutral’ and now rates six stocks in the sector as 'underweight'.
But house broker Shore Capital took a differing standpoint, reiterating a 'buy' rating after hosting a meeting with wealth & institutional portfolio managers with Tesco’s CFO in London.
It feels the group is well-set, grounded, with the right culture and "so to us on track to sustain growth in earnings, cash flows and shareholder distributions."
Tesco foresees ongoing inflation, noting the net living wage, but also a rational UK grocery market with growth opportunities in convenience, Booker, non-food and digital media.
Shares in Tesco are down 1.9% at 280.60p.