Is it worth getting out of Tesco PLC (LON:TSCO) ahead of its interim results statement?
Well according to one City heavyweight, the answer is a resounding yes.
The recent run up in the share price - around 25% since June - flatters the grocer.
READ - Week Ahead: Food price deflation a concern at Tesco
JP Morgan Cazenove, in a note previewing the figures this Wednesday (October 5), said pension worries and an overstretched balance sheet still haunt the group.
It also points out that consensus profit forecasts have been progressively pegged back over recent months.
This is to reflect a less than stellar performance from the core UK supermarket operation.
Remember, Tesco, J Sainsbury plc (LON:SBRY), WM Morrison Supermarkets (LON:MRW) and Wal-Mart owned ASDA are under siege from German discounters Aldi and Lidl, which are making significant market share gains.
Sainsbury last week unveiled a 1.1% decline in underlying sales in the last quarter and received a drubbing on the day of the update.
Currently changing hands for 183p, JPM reckons the Tesco is worth 135p a share.
The broker remains ‘underweight’ on the stock and believes the market has become ‘overexcited’ so far as Tesco is concerned, particularly given the difficult market backdrop.
As the sector’s 800 lb gorilla, Tesco should be better placed to use its muscle to resist erosion of its market share.
First quarter figures announced in June, at least showed the core UK business registering year-on-year growth in like-for-like sales.
Underlying sales rose 0.3%, with volumes up 2.2% and the number of transactions up 1.7%, which tells us that food price deflation remains a problem for supermarkets.
“Fierce price competition and promotions are likely to remain a squeeze on margins for some time and the revised strategy is going to take time to implement.
"Investors backing the new management will be hoping that the signs of improvement in the June results will, like the share price, have continued,” suggested analyst Graham Spooner at The Share Centre.
Meanwhile, rival Morrisons' recent half-year results showed the floundering chain’s decision to take the fight to the hard discounters was showing signs of working.