Tesco share price: What analysts are saying

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On Tuesday, Tesco hit a new 14-year low following its latest profit warning after the supermarket giant slashed full year profits to £1.4bn, well below analyst estimates.

This is what the experts are saying:

Chris Stevenson, Vice President at Barclays Stockbrokers:

“In the wake of Tesco’s revised profit forecast and warning, and the subsequent fall in its share price, the company’s stock accounted for 15% of all trades made by Barclays Stockbrokers’ clients yesterday. 82% of those trades in Tesco were buys, which equated to 20% of all client buys on the day. Investors capitalised on Tesco’s weakened share price, demonstrating their confidence in its potential to recover from this latest setback.”

Ken Perkins, equity analyst at Morningstar:

“We may lower our near-term forecasts slightly… as we don’t see enough evidence to believe that sales growth will accelerate enough for Tesco to leverage expenses and drive trading margin back to a 4% level over the near to medium term. However, given that our base-case assumptions remain relatively conservative, we still believe that shares are undervalued.

“Tesco is trying to reinvent itself amid difficult industry conditions and fierce competition, but Tesco’s size limits its near-term options. The firm has more exposure to large hypermarket formats, and consumers are shifting away from these formats.”

Nick Bubb, independent retail analyst:

“The structural problems of how to deal with the discounters and how to deal with the millstone of the hypermarkets have yet to be tackled...and the Tesco UK business is already losing money. With the credit rating agencies breathing down Tesco’s neck, the worst may yet be to come.”

Bruno Monteyne, retail analyst, Bernstein Research:

The stock initially reacted negatively as we expected, as people will have been shocked by the scale of the profit warning. While clearly big numbers (£500 million of short fall), it was important to note this was not Tesco suffering from yet another round of negative operational deleveraging or starting an all-out price war; this was Tesco getting the cleanest of clean slates for the fight ahead.

Dave McCarthy, retail analyst, HSBC:

“We suspect profits are impacted by a large issuance of vouchers, by the removal of slotting fees as ranges are reduced and by Tesco having less negotiating power with suppliers post the accounting scandal. Long term, if Tesco can stimulate sales, strengthen its management team and sort out its over-stretched balance sheet, it still has the potential to be a strong UK market leader. There will be bumps in the road, but we remain of the view that Tesco is on the right road and that focussing on the long-term needs of customers is the best way to serve long-term shareholders' interests.”

Tony Shiret, retail analyst, BESI research:

“We learnt, sadly, three things from today’s Tesco profit warning. First, Tesco’s fifth profit warning this year implies … we now expect Tesco UK to make losses in the [second half of the year]. Second, we think Tesco remains increasingly at imminent risk of junk status by credit agencies… Third, while we expect Tesco to cut capex to maintenance and forego dividends for the next two years, we believe Tesco still needs to cut prices by at least 5-10% and improve the quality of its produce alongside convincing consumers and investors that an out-of-town, large uncompetitive shop at an expensive bespoke site is still relevant.”

Clive Black, retail analyst, Shore Capital:

“We fully remove our expectation for a 2015 final dividend payment (previously we forecast a 75% cut) and now also assume no dividend in 2016… What is clear, Mr Lewis is willing to take on considerable profit pain to reposition Tesco. The implication of the update, in our view, is that it is clear that Tesco’s new management team is willing to take a period of significantly lower profitability, and even losses in the UK, to move Tesco to a more sustainable footing.”

Mike Dennis, retail analyst, Cantor Fitzgerald:

“The recovery of the UK could take longer as we believe the CEO needs to simplify the business via UK and International asset sales, then reconnect with suppliers by changing payment terms and lowering his cost of goods and then start on the long road to rebuilding the Tesco brand with shoppers. Tesco has the most developed multi format strategy and is well placed in the convenience market so should benefit from this growth, but will need, in our view, to redeploy space in hypermarkets to more productive use. All this could take several years and suppliers are not going to be disposed to Tesco given the negative industry volumes and poor performance of Tesco over the last two years.