The Tesco (LSE:TSCO) share price has really kicked back into life over the last couple of years. Before that, the FTSE 100 supermarket stock had gone nowhere for a decade, with the 2014 accounting scandal still hurting investor sentiment.
But after a stunning 69% surge in the past three years, Tesco is siting pretty just off a 13-year high. The question for shareholders now is: can this run continue?
Let’s take a look at the latest forecasts to see what the experts think.
Spreadsheets and stars
As I type, a single Tesco share is changing hands for 454p (or £4.54). That’s up from 378p a year ago.
Obviously it’s impossible to know for sure what price the stock will be trading at in 12 months’ time. But City brokers are paid to give it their best shot, and they currently have an average 12-month price target of 517p.
So, if their spreadsheets are right (and the stars align), Tesco shareholders could get another 13.9% boost to the value of their holdings by mid-2027.
But that’s not all, of course, because Tesco pays dividends. Indeed, until the recent share price outperformance, that’s what the stock was primarily bought for, along with its defensive qualities inside a portfolio.
According to the latest forecast, Tesco will dish out a dividend of 15.6p per share for the current fiscal year (FY 2026/27). That would be a nice 7.3% boost on the year before, and translates into a forward-looking dividend yield of 3.45%.
Looking ahead to next year, analysts reckon the dividend will rise to around 17p per share. So there’s decent income on offer here, albeit not spectacular.
Could things go pear-shaped?
Again, these figures aren’t set in stone, and the supermarket giant is currently navigating another tricky period. That’s because the Iran war is pushing up fertiliser, raw ingredients and transport costs, resulting in higher food prices.
Last month, UK food inflation accelerated to 3.7%. Alas, I’m already seeing this filter through to the shelves on my weekly shopping trip to Tesco. A Melton Mowbray pork pie (one of life’s great pleasures) is now just shy of £2, while meat and coffee have been ticking up.
Inflation is a double-edged sword for supermarkets. While it can push up headline revenue figures, many shoppers also change their behaviour to save money.
For example, they’ll trade down from premium brands to budget ones or just skip certain items altogether, resulting in smaller basket sizes.
And when household budgets get squeezed, discretionary spending is the first thing shoppers cut. But items like toys, homewares and clothes often carry higher margins than everyday food items. So this is far from ideal.
Finally, if things get really ugly, there could be more political pressure on supermarkets to cap prices on eggs, milk and bread (and hopefully premium pork pies!). If so, that could take a bite out of margins.
What about valuation?
Given this backdrop, is Tesco one to avoid? I don’t think so, as the stock’s trading at 13.5 times next year’s forecast earnings (a reasonable valuation).
On top of this, there’s the dividend, Tesco’s leading 28% market share, and ongoing share buybacks. For long-term income investors willing to look past the noise, I still think the stock’s worth considering.
Should you invest £5,000 in Tesco Plc right now?
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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tesco Plc made the list?
Ben McPoland has no position in any of the companies mentioned.
