Tesco shares supported as Deutsche Bank expects profit to stay on track

Tesco PLC (LSE:TSCO), the UK supermarket group, is expected to report a first-half adjusted operating profit of £1.725 billion, up 3% year on year, despite weaker UK like-for-like sales.

Deutsche Bank analyst Benjamin Yokyong-Zoega has cut his forecast for second-quarter UK like-for-like sales growth to 1.7% from 2.2% following softer market data.

The bank expects Tesco's full-year guidance of £3 billion to £3.3 billion in adjusted EBIT could be narrowed when the retailer reports its results on 8 October.

Tesco's shares trade at 15.6 times Deutsche Bank's estimated 2026 earnings, while the broker calculates a free cash flow yield of 6.6%. Deutsche Bank retained its buy rating and 525p price target, compared with Tesco's latest closing price of 477p.

The broker expects Tesco to remain relatively well-positioned as inflation rises, citing its scale, competitive pricing, private-label products and opportunities to improve margins.

Market share has slipped slightly following Tesco's strong gains last year, but Deutsche Bank expects comparisons to become easier from November.

Inflation remains subdued but is beginning to rise as higher energy and fertiliser costs, alongside climate-related pressures, affect the outlook.

Deutsche Bank expects those pressures to feed through gradually because Tesco has some protection from hedging across its supply chain.