Stock of the Week: Tesco

VIDEO: Supermarkets are at the sharp end of the cost of living crisis, but Tesco shares are undervalued and yield around 7%

James Gard 7 October, 2022 | 9:07AM
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James Gard: Welcome to Morningstar. Making another appearance as a stock of the week is Tesco, which has just put out some mixed interim results.

Revenues were higher than the same period last year but profits were down 60% on 2021, which was a bumper year because of lockdown shopping. Tesco shares fell on the day, dragging the retail sector down with it. What has unnerved investors? The first reason is that the supermarket has lowered its profit forecasts for the full year. And its chief executive Ken Murphy said customers are under “extreme pressure” in managing their household budgets. All retailers are at the sharp end of the cost of the living crisis and Tesco is no exception.

But supermarkets, especially if they are seen to offer good value groceries, also have an opportunity to win customer loyalty if they appear to be helping them save money, even as food costs are soaring. That’s the theory, but it’s a tricky balancing act. Our analysts think that Tesco is the best positioned grocer under Morningstar coverage, especially given its dominant online and offline position.

Tesco shares are down 30% so far this year, but high-end rival Ocado is off 70% after a multi-year winning streak. Our analyst Ioannis Pontikis thinks Tesco shares are undervalued at around £2 a share, with a fair value of £2.98. He adds that, factoring in the buybacks and the latest dividend increase, the shares yield around 7%. 


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James Gard

James Gard  is senior editor for


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