Deutsche Bank has started coverage on the UK’s two biggest listed supermarkets, rating Tesco PLC (LSE:TSCO) a 'buy' with a target price of 470p and J Sainsbury PLC (LSE:SBRY) a 'hold' with a 310p target.
It says the sector is facing ongoing competition and cost pressures, but the major players are holding their ground on value and market share.
Deutsche argues that Tesco is better placed to steer through current market conditions, thanks to its operational efficiency, scale and buying power.
The group’s online growth and the continued success of Clubcard are seen as longer-term strengths that could drive further profits.
For Sainsbury’s, the German bank acknowledges improvements from its renewed focus on food and value.
However, the bank points out that lower profit margins, weaker sales densities and efficiency compared with Tesco may make the current environment trickier to navigate. Sainsbury’s exposure to Argos also adds extra risk if the economic cycle turns.
Tesco’s earnings per share forecasts from Deutsche Bank are about 5% ahead of consensus, with the bank expecting 8% annual growth over the next three years.
That is based on forecast sales growth of 3% and a 4.4% operating margin in the 2028 financial year.
Tesco shares trade on roughly 15 times 2025 earnings, compared with about 14 times for Sainsbury’s.
Deutsche Bank’s target for Tesco suggests around 10% upside from current levels, and total returns of more than 15%. In contrast, the limited upside for Sainsbury’s leads to the more cautious 'hold' rating.
Shares in both grocery chains were flat.