On Thursday, Citi updated its outlook on shares Tesco (OTC:TSCDY) Plc. (TSCO:LN) (OTC: TSCDY), raising the supermarket giant's price target from £3.50 to £4.25, while reiterating a Buy rating on the stock. The adjustment follows the recent release of monthly UK Kantar grocery data and ahead of Tesco's first half of fiscal year 2025 results expected on October 3, 2024.
The firm forecasts that Tesco will see a 0.4 percentage point acceleration in second-quarter 2025 retail like-for-like sales (LFLs) to 3.8%, compared to 3.4% in the first quarter. The analyst predicts continued market share gains for Tesco in the UK, supported by low-single-digit food inflation and four consecutive quarters of growth.
Citi has increased its UK forecasts for Tesco, citing the latest Kantar data, which suggests a stronger-than-anticipated performance with an estimated 5.1% increase in UK LFLs for the second quarter of 2025, up from the previously projected 2.8%.
The firm also expects Tesco's operations in the Republic of Ireland to maintain momentum, with a forecast of 3.5% LFL growth in the second quarter, although this is a slight decrease from the 4.4% growth in the first quarter.
Moreover, the analyst anticipates a modest sequential improvement in Tesco's Booker wholesale business, with LFLs expected to be down by 0.8% in the second quarter compared to a 1.3% decrease in the previous quarter. The outlook for Central Europe is also positive, with a projected LFL increase of 1.0% in the second quarter, up from 0.6% in the first quarter.
As a result of these forecasts, Citi has increased its estimate for Tesco's fiscal year 2025 retail earnings before interest and taxes (EBIT) by 1% to £2,867 million, which is slightly above the company's guidance of at least £2.8 billion and compared to a consensus estimate of £2,891 million.
The firm's projection for Tesco's retail free cash flow (FCF) for fiscal year 2025 is £1,508 million, which falls within the company's guidance range of £1.4 to £1.8 billion and is below the consensus estimate of £1,617 million.
InvestingPro Insights
As Tesco Plc. (TSCO:LN) (OTC: TSCDY) approaches its first half of fiscal year 2025 results, InvestingPro data and tips offer additional insights for investors. The company boasts a perfect Piotroski Score of 9, indicating a strong financial position, which may reassure investors about the company's fundamentals. Moreover, management's aggressive share buyback strategy is a signal of confidence in the company's valuation and future prospects.
From a financial metrics perspective, Tesco's adjusted P/E ratio for the last twelve months as of Q4 2024 stands at 13.94, suggesting a potentially attractive valuation relative to near-term earnings growth. The company's strong performance is reflected in its 3-month price total return of 26.38% and a 1-year price total return of 55.44%, highlighting significant investor returns over these periods. With a dividend yield of 5.26%, Tesco also presents an appealing income component for shareholders.
For those looking for more in-depth analysis, there are over 10 additional InvestingPro Tips available, which provide further guidance on Tesco's stock performance and future outlook. Investors can explore these valuable insights to inform their investment decisions.
For more detailed InvestingPro Tips on Tesco, visit: https://www.investing.com/pro/TSCDY
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