Tesco PLC (LSE:TSCO) reported first-quarter sales that met expectations but disappointed on underlying store traffic, prompting divergent views from major brokers on the supermarket's near-term prospects.
The grocer's UK like-for-like sales, which strip out new store openings and closures, increased 1.8% but fell 50 basis points short of consensus expectations, reflecting what Citi described as a slightly softer start to the quarter.
Deutsche Bank said Tesco remains on track to deliver earnings before interest and tax towards the upper end of its annual guidance, describing the quarter as noisy but containing reassuring messages on profit and cash generation from management.
The retailer benefited from inflation running below the broader market, which supported volume growth and improved customer satisfaction, while incremental earnings came from retail media networks, a 15% increase in insurance policy growth and expanding mobile phone penetration.
Deutsche reiterated its 'buy' rating and raised its target price to 525p, implying roughly 16% upside from the 452.40p closing price, while viewing Tesco as a high-quality multi-year compounder well-positioned for relative outperformance given its leading scale and defensive qualities in an uncertain economic environment.
Citi maintained its target price of 545p and unchanged earnings per share forecasts for financial years 2027 and 2028, despite the like-for-like sales miss, noting that revenues came in line and the company reiterated its full-year earnings guidance.
The wholesale business Booker reported like-for-like sales down 3.2%, slightly better than Citi's previous expectation of a 3.5% decline but worse than consensus forecasts for a 2.4% drop.
Citi expects a slightly negative share-price reaction to the like-for-like sales shortfall but described any weakness as an enhanced buying opportunity given the in-line revenues and unchanged forward guidance.
The supermarket chain trades on 15 times forward earnings and offers a 6.5% free cash flow yield, metrics that Deutsche argues offer reasonable value for a defensive business facing structural headwinds from below-inflation pricing competition and consumer caution amid economic uncertainty.
