Investing.com - Morgan Stanley initiated coverage on Tesco Plc. (LON:TSCO) (OTC:TSCDY) with an overweight rating and a price target of GBP5.60.
Analyst Izabel Dobreva said Tesco’s operating momentum remains strong, with the flywheel of share gains, premiumisation, online growth and retail media driving a sustained step-up in earnings power. This momentum is reflected in the stock’s impressive 25% return over the past year, while InvestingPro data shows the company maintains a "GOOD" financial health score of 2.73.
Morgan Stanley forecasts UK retail like-for-like sales growth of more than 3.5% per annum through FY27-FY28e, underpinning a roughly 5% three-year PBT CAGR. The company’s recent revenue growth of 5.4% supports this optimistic outlook, with shares trading at a P/E ratio of 16.65. The firm said consensus underestimates the durability of Tesco’s competitive edge, with its PBT forecast sitting roughly 4.5% above the Street by year three.
The firm’s side-by-side analysis versus Walmart shows that Tesco’s digital opportunity set could be worth approximately 14% to profits and roughly 60 basis points of margin as a percentage of FY27e levels if the business catches up to where Walmart is today on Marketplace and Retail Media.
Morgan Stanley named Tesco a top pick and said the 12-month price target implies 20% upside as confidence in growth durability builds.
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