Barclays reiterated its overweight stock ratings on J Sainsbury PLC (LSE:SBRY) and Tesco PLC (LSE:TSCO), with target prices set at 300p and 325p respectively.
Analysts at the bank compared the two retailers’ valuations given they both released full-year results recently.
The broker believes that over the next three years, Sainsbury’s offers a higher free cash flow yield, essentially the money available to pay dividends and interest to shareholders, at 9.3% versus Tesco’s 7.6%.
However, Tesco offers a higher cash return yield to shareholders out of the two, at 7.9% to 5.5% according to the bank, supported by its share buyback.
Barclays also believes Sainsbury’s will return no surplus cash to shareholders until at least 2024/25, and sees no way it can match Tesco’s cash yield for the next three years.
On a price/earnings basis, Tesco is seen as more expensive than Sainsbury for each of the next three years, but its premium drops from 20% to 7%.