Key Morningstar Metrics for Tesco
- : GBX 451Fair Value Estimate
- : ★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : LowMorningstar Uncertainty Rating
What We Thought of Tesco’s Earnings
Tesco TSCO’s full-year fiscal 2026 results included broad-based sales growth of 4.3% and operating profit growth of 0.6%, both at constant exchange rates. Earnings per share increased 6%, driven by higher profitability and share buybacks. Shares rose 2% intraday on April 16.
Why it matters: Tesco’s price and product investments are reflected in its full-year results, alongside continued market-share gains and online sales momentum. Fiscal 2027 guidance to deliver operating profit of £3.0 billion-£3.3 billion signals an improvement from the previous year, which we think the firm can meet.
- The profit guidance range is broad due to uncertainty about the impacts of the Middle East conflict on UK households. Management noted that, so far, there has been no discernible shift in consumer spending behavior; however, we suspect this could change. Nevertheless, we expect headwinds to be temporary.
- Food inflation has moderated in the last few months; however, we anticipate the trend could reverse with the impact of the conflict. We expect Tesco to continue pricing slightly below inflation.
The bottom line: We raise our fair value estimate for no-moat Tesco to GBX 495 per share from GBX 451. At current levels, shares are fairly valued. While the near-term environment seems uncertain, we think Tesco is well positioned to achieve its short- and long-term targets. With this, Tesco is our preferred pick among UK grocers.
- We expect the competitive environment to remain intense in fiscal 2027; however, we believe Tesco will maintain or increase its grocery market share across operating regions.
- The company raised its cash flow target to £1.5 billion-£2.0 per year, up from £1.4 billion-£1.8 billion per year. We expect cash generation to be supported by ongoing cost-saving initiatives and strategic investments paying off.
