Tesco share price forecast 2021: soaring profits and growing dividends amid booming sales
20:35, 19 October 2020
Amid the increased fears of a second national lockdown in the UK, it is quite easy to understand why traders have chosen the British biggest supermarket Tesco as the stock of the week. Will Tesco share price go up on the second boost of online sales, or continue its downward movement for the rest of 2020?
While the panic-buying in March is still fresh in people’s minds, it is no wonder that supermarkets serve as a life ring for housebound customers during the pandemic, which helps retailers to survive. However, there are some bigger factors, such as the company’s earnings and TSCO shares news, which may drive the investment sentiment and change the Tesco share price forecast for better or for worse.
Let’s explore the major ones and try to build the Tesco share price forecast 2021.
Tesco share price news: main factors to consider
Impressive half-year results and lifted dividends
Despite the challenging market environment Tesco has recently reported a 29 per cent growth in pre-tax profits to £551m on sales of £26.7bn.
For the six months to 29 August 2020, the UK’s largest supermarket chain reported a 4 per cent increase in operating profits to £1.2bn. The growth was driven by the booming food sales together with the tax break, which enabled the retailer to offset the £533m bill for additional safety measures and extra staff in its stores.
Higher than expected interim results allowed Tesco to increase the half-year dividends by 20 per cent this year, defending a plan to pay £315m to shareholders.
What happened with Tesco business during the summer months:
New CEO, new strategy
The interim results 2020/2021 were the first outing for Ken Murphy, who has just succeeded Dave Lewis as the Chief Executive Officer of the UK’s leading retailer.
Commenting on the H1 results, the new CEO admitted:
Right now the British grocery market is one of the most competitive, significantly boosted by the number of people shopping online during Covid-19 lockdown. Tesco believes the company’s retail profitability will be “at least the same level” by the end of this year as it was last year.
Ken Murphy took over from Dave Lewis, who left his post after five years. Lewis led the company out of an accounting scandal and focused on its core business in the UK and Ireland after a series of the company’s international initiatives failed to pay off.
Today, Tesco continues selling its stores in Malaysia, Thailand and Poland, aiming to improve the company’s competitiveness in its home market to meet the challenge from the discounters Aldi and Lidl. However, Ken Murphy assured that there is no plan for further retrenchment.
Harsh competition: mind the discounters
Despite a significant boom in supermarket spending, the Tesco share price trend has not yet reversed to gains, with the TSCO stock still down 16 per cent since January 2020. In contrast, Tesco’s smaller competitor Ocado (OCDO) saw its shares doubling in price.
According to Ioannis Pontikis, analyst from Morningstar, Tesco shares at their current level of 214p are trading below their fair value of 249p. It means that despite the growing sales investors are still worried about Tesco’s tough competition from its major rivals and weak sales rates in Europe.
Tesco has been keeping the leading position at the UK’s retailer business for years. According to Kantar’s recent estimates Tesco occupies almost 27 per cent of the market share. The retailer’s closest rivals are Sainsbury’s and Asda with 14 per cent each. If the two rivals merged, they would have challenged Tesco’s dominance. However, the British competition authorities wrecked the deal.
It seems that tough competition is the major reason why Tesco can’t reach a significant advantage over its rivals. All major British supermarkets have to face the threat from big discounters, such as Lidl and Aldi, which draw people’s attention in an uncertain economic environment.
While Tesco is planning to reduce its physical space, Lidl and Aldi (having a combined market share of 14.9 per cent) are planning more store openings.
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TSCO stock analysis: will Tesco shares go up?
With no doubt, the retailer was not the one who was deadly hit by the pandemic. It would seem that a 90 per cent growth in online sales alone could be regarded as a positive incentive for sending the Tesco share forecast to a new bullish trend.
However, the most recent Tesco share price prediction and analysis looks different. The TSCO price has been on a downtrend since February: the stock dropped down from its YTD high of 260p on 11 February to its YTD low of 203p on 23 March 2020.
The Tesco stock rebounded by May, but the wider bearish trend took over. Over the last couple of months Tesco share price pretty much went sideways, reaching its lowest level of 206p on 2 October.
According to the latest Tesco share prediction, If the bearish trend continues it could target the next support at 200p. On the opposite direction, if the price rebounds, it could climb up to 220p, Tesco’s 50-day moving average.
Tesco share price forecast 2021: are Tesco shares a good buy?
Coming closer to the end of 2020, investors are still wondering “Tesco shares: buy or sell?” Trying to find the answer, you can refer to some of the most esteemed analytical services. For example, 13 analysts surveyed by Financial Times share a positive view on the Tesco share price prediction 2021.
Offering 12-month price targets for Tesco, they suggest a median target of 276p, which is 28 per cent higher than the stock’s latest price of 214p. The highest estimate for TSCO stock is 315p and the lowest one is 208p.
Other popular analytical resource Walletinvestor is less optimistic regarding the 12-month Tesco share price forecast. They believe Tesco could be an acceptable long-term investment with a median price target of 233p in 2021. Looking further, analysts suggest a longer-term increase in the TSCO price up to 284p by 2025.
Although the Tesco stock price forecast 2021 remains unclear, the company’s fundamentals seem strong. The retailer is pretty good at navigating through the challenging year and expects the same level of operating profit as in 2019.