​Tesco earnings preview – share price bolstered by hopes of more growth

​​​Financial performance and market position

​Tesco's financial resilience continues to impress analysts, with its share price reaching a 10-year high in 2024. The company's forward 12-month P/E ratio of 13.93 and an estimated long-term growth (EPS) of 7.18% reflect a cautiously optimistic outlook. With a current share price of £359.40 and an average analyst target price of £370.83, the market appears to recognise Tesco's potential for further growth. The mix of analyst recommendations (11 Buy, 3 Hold, 3 Sell) underscores a generally positive sentiment towards the stock.

​Strategic initiatives and adaptability

​Tesco has adeptly navigated the challenging economic landscape, leveraging high food inflation in 2022-23 to boost food-sales densities in its supermarkets. The company's strategic increase in freehold ownership percentages has enhanced its operating leverage, although this benefit is partially offset by rising costs due to a 10% minimum-wage increase. Tesco's continued push for higher online-shopping penetration, including the quick-delivery Whoosh service, demonstrates its commitment to capturing market share in the evolving retail landscape. These initiatives have contributed to Tesco's market-share gains in the UK, with food-sales growth appearing to lead in both Europe and the Republic of Ireland.

​Financial outlook and challenges

​Looking ahead, Tesco faces both opportunities and challenges. The company's retail free cash flow is expected to decrease to £1.4-£1.8 billion due to working capital and cash tax considerations. However, the retail operating profit guidance of at least £2.8 billion suggests potential for upward revision. The disposal of capital-intense parts of Tesco Bank to Barclays, while reducing the expected profit contribution to £80 million, aligns with a strategy of focusing on core retail operations. Additionally, the £1 billion share buyback programme is set to boost earnings per share, potentially enhancing shareholder value.

​Navigating market dynamics

​Tesco's earnings strategy reveals a nuanced approach to market dynamics. The split between first half (51%) and second half (49%) operating profit consensus indicates that Tesco may be positioning itself for aggressive pricing during the traditionally more profitable peak season. This strategy could help Tesco maintain its competitive edge in a market where consumer spending patterns remain sensitive to economic pressures. However, challenges persist, including falling tobacco revenue impacting the Booker division and tough comparatives in retail and catering sectors.

​In conclusion, Tesco's financial performance and strategic initiatives demonstrate a company adeptly navigating a complex economic environment. By leveraging inflation to improve sales densities, expanding its online presence, and maintaining a strong market position, Tesco appears well-positioned for continued growth. However, the company must remain vigilant in addressing ongoing challenges, including rising costs and evolving consumer behaviours, to sustain its market leadership in the highly competitive UK grocery sector.

​Tesco analyst ratings

​According to LSEG Data & Analytics analysts are rating Tesco as a buy with 3 strong buy, 9 buy, 3 hold and 1 sell with a mean long-term price target at 382p, around 6% above current levels (as of 30 September 2024).

​According to TipRanks the Tesco share is also rated as a buy (8 buy, 1 hold and 1 sell) and has a SmartScore rating of outperform 9 (as of 30 September 2024).

​Technical analysis on the Tesco share price

​The Tesco share price, up around 22% year-to-date (YTD), is going through a minor correction following its September 373.9 pence 11-year high.

​Tesco monthly candlestick chart

​Were a rise above the 373.9p high  to be seen, the May and September 2013 highs at 382.0p-to-388.0p would represent the next higher technical target zone, ahead of the psychological 400p region.

​The current near 4% decline from the 11-year Tesco share price high only made a very minor dent in the long-term uptrend. Were it to continue, the 55-day simple moving average (SMA) at 345.4p and the 28 August low at 345.1p may offer short-term support. If not, a deeper retracement towards the early August high and 21 August low at 337.7p-to-335.2p may be on the cards.

​Tesco daily candlestick chart

​While the April-to-September uptrend line at 331.1p underpins, the long-term Tesco share price uptrend remains valid.