Tesco PLC's (LSE:TSCO) conservative guidance for the year ahead understates the supermarket's true earnings potential and the shares remain a 'buy', Deutsche Bank argues, lifting its price target to 525p from 500p following last week's full-year results.
Analyst Benjamin Yokyong-Zoega describes Tesco as a "high-quality multi-year compounder," pointing to an upgraded medium-term free cash flow outlook, a strong competitive position, and a track record of outperforming its own guidance as the foundations for continued confidence.
Tesco delivered another profit beat in the financial year to February 2026 but set out a cautious profit range for the year ahead, citing macro uncertainty and an intention to defend value for customers through price investment.
Deutsche views the guidance as deliberately conservative, with its own forecast sitting at the upper end of the range the retailer provided.
Yokyong-Zoega acknowledges risks to the UK consumer backdrop and the potential for renewed inflation, but argues Tesco's defensive characteristics, incremental profit streams, and pricing firepower leave it well placed to navigate a more difficult environment.
The broker's 525p twelve-month price target implies approximately 14% upside from the current price of 493p.
The stock trades on 16 times calendar year 2026 earnings and offers a free cash flow yield of around 6%, which Deutsche Bank regards as attractive for a retailer of Tesco's quality and scale.
The bank cautions, however, that solid execution and continued earnings momentum will likely be needed to drive further outperformance in the near term, given the share price re-rating seen so far this year.