Tesco PLC (LSE:TSCO) shares rose 2.1% on Monday after UBS named the supermarket giant its top pick into the year-end and lifted its price target from 435p to 475p.
The bank expects a robust first-half update on 2 October and sees scope for further upgrades as competitive risks fade and execution continues to impress.
The update comes as Tesco cements its position as the strongest operator in a still-rational UK grocery market. UBS has reiterated its “buy” rating, citing a combination of market share gains, improved customer perception and strong earnings momentum.
Group EBIT guidance is expected to be nudged higher, with the lower end of the current £2.7 billion to £3 billion range likely to be lifted.
Tesco’s recent run of industry data has been impressive. Kantar figures for the 12 weeks to 11 August showed sales growth of 7.4% and an 80 basis point gain in market share.
UBS’s own Evidence Lab data suggests this strength is being driven by genuine improvements in execution, with customer satisfaction metrics at their highest levels since tracking began in 2017.
For the first time, Tesco is approaching Aldi on Net Promoter Score and now ranks first for perceived price attractiveness.
The retailer is also seeing more frequent visits, better ratings on quality and value, and a growing share of customers' budgets. UBS expects second-quarter UK like-for-like sales growth of 5%, up from 4% previously.
On the competitive front, fears over an aggressive reset by Asda appear to be easing.
UBS reports no material shift in Asda’s customer metrics six months on from its price repositioning, and notes that Tesco’s price perception has actually improved modestly versus Asda in recent months.
Sector pricing remains stable, with no visible signs of a return to discount-driven competition.
Valuation remains compelling, in UBS’s view. Based on a discounted cash flow model, the new 475p price target reflects a long-term EBIT margin of 4.6%.
Forecast earnings for 2026 have been nudged higher to £2.95 billion, with small upgrades to subsequent years as well. The bank sees Tesco delivering a mid-teens annual total shareholder return over the medium term.
The shares rose 9p to 431.7p.