Shore Capital has nudged up its profit forecasts for Tesco PLC (LSE:TSCO)after a better-than-expected Christmas, while reiterating its buy rating on the shares at 416p.
The broker said Tesco’s 19-week trading update in early January showed a resilient performance in a tighter and more competitive grocery market.
Management lifted guidance for the year to February 2026, now expecting adjusted operating profit to come in at the upper end of its £2.9 billion to £3.1 billion range.
That prompted ShoreCap to raise its full-year operating profit and earnings forecasts by around 3%.
It now expects earnings per share of 28.4p this year, rising to 31.0p next year. Free cash flow guidance was left unchanged, with Tesco still expected to generate between £1.4 billion and £1.8 billion a year.
UK trading over Christmas was solid rather than spectacular, according to the broker.
Industry data showed modest sales growth and slightly weaker volumes across the market, but Tesco outperformed, delivering 3.2% growth over the key six-week festive period and continuing to gain market share.
Looking ahead, ShoreCap expects 2026 to remain competitive, with grocery volumes slow to recover and inflation easing back through the year.
It also flagged uncertainty over whether appetite-suppressing weight-loss drugs are starting to affect consumer behaviour, though it said any shift in spending could favour fresh food over processed products.
While Tesco’s shares have already re-rated and now sit closer to fair value, ShoreCap still sees the group as a reliable cash generator.
It pointed to steady profit growth, a dividend yield of around 3.5% and ongoing share buybacks as reasons to stay positive, even if future gains are likely to track earnings rather than come from further valuation uplift