What’s going on with the Tesco (TSCO) share price?

January 11, 2024 06:02 PM PST | By Invezz

What’s going on with the Tesco (TSCO) share price? — Image source: Invezz

Tesco is doing well

Tesco and other large British retailers are doing well as demand remains strong. In a report on Thursday, Tesco said that its total retail sales in the third quarter jumped by 6.6%. This growth was driven by ROI whose sales rose by 8.3% and the UK, whose sales jumped by over 7.3%. Booker revenue rose by 3.9% while Central Europe declined by 1.4%.

These results show that the company is still gaining market share in the UK, where it is the biggest retailer. It did that by cutting prices and attracting substantial number of store visits. The management slashed nearly 2,700 prices.

As a result, Tesco decided to upgrade its forward guidance. It expects that its full-year retail adjusted profit will be £2,75 billion, higher than the previous range of between £2.6 billion and £2.7 billion. It also expects to have a free cash flow of £2 billion while Tesco Bank is expected to bring in between £130 million and £160 million.

Tesco hopes that it will continue doing well this year as inflation cools, wage growth remains resilient, and the economy stabilises. It also aims to boost its share of online sales and convenience stores.

However, like Next PLC, the company warned about the ongoing crisis at the Red Sea and its impact on imports. This is notable since Tesco sources most of its products abroad, especially in China. The longer this crisis escalates, the worse for the company.

The other potential catalyst for Tesco share price is that it is still quite cheap. According to Simply Wall St, a DCF calculation shows that the company was trading at a 39% discount to fair value. The PE multiples are also cheaper than its peer companies.

UK companies always trade at a discount compared to their American peers. For one, unlike in the United States, the retail participation in UK stocks tends to be quite small. Also, UK companies lack strong growth catalysts compared to their American peers.

Tesco share price analysis

TSCO chart by TradingView

A technical analysis can help us estimate the next price action for Tesco. Turning to the weekly chart, we see that the TSCO stock price has generally been in a strong uptrend in the past few years. This rally started in 2016 when the shares moved from a low of 87.12p.

The uptrend faced substantial headwinds in 2022 as the Fed and Bank of England (BoE) hiked interest rates. It remains above the 50-week and 25-week Exponential Moving Averages (EMA).

It has moved above the key resistance point at 278.5p, the highest point on January 31st. Therefore, I suspect that the stock has more upside in the coming months, with the target being at 350p. In the short term, however, the stock will likely retest the support at 278.5p and then resume the uptrend.

The post What’s going on with the Tesco (TSCO) share price? appeared first on Invezz

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