Tesco share price in focus ahead of Q1 earnings as a bullish pattern forms

Tesco’s share price will be in focus as the company publishes its first-quarter trading statement on June 18. The update should provide greater insight into its revenue growth, profitability trends, and market share performance. Tesco shares were trading at 462p on Wednesday, slightly below this week’s high of 476p.

Tesco share price in the spotlight ahead of earnings

Tesco investors are hoping that the upcoming first-quarter earnings will help to supercharge its stock, which has moved sideways this year.

These results come at a difficult time for the UK economy, as households continue to face cost-of-living pressures and economic growth remains subdued. Recent data from the Office of National Statistics (ONS) showed that retail sales have eased in the past few months.

UK retail sales stagnated in April after growing by 1.4% in March, 1.6% in February, and 4.6% in January this year. 

Tesco, the largest UK retailer, often performs well in times of uncertainty due to its lower prices. We saw this during the pandemic, when it increased its market share by boosting its e-commerce services.

The most recent results showed that Tesco made over £66.58 billion last year, up by 4.6% YoY. Its free cash flow rose by 11.8% to £1.957 billion, while its operating profit rose by 0.8% to £3.15 billion. 

A look beneath the surface showed that its market share grew to 28.3%, its highest level in over a decade. This happened despite the intense competition from companies like Aldi, Lidl, and Asda. 

Tesco has used its profits to boost its shareholder returns through a combination of dividends and share buybacks. It paid £937 million in dividends last year, and completed a £1.45 billion share repurchase program. It has repurchased shares worth over £4.3 billion since 2021, reducing its share count to 6.35 billion from 6.7 billion last year. 

These numbers come at a time when it has become relatively undervalued. Data shows that its forward price-to-earnings (P/E) ratio stands at 16.47x, which is reasonable for a company with a leading market share. 

Similarly, Tesco has a PEG ratio of 1.8, suggesting moderate growth expectations relative to its valuation. More data shows that it has an EV/EBITDA of 8.59x and a price-to-book ratio of 2.75x. 

These numbers suggest that the stock may rebound over time. Indeed, analysts have a bullish outlook for the company, with the average target being 516p, up substantially from the current 416p. 10 of the 15 analysts tracking the company have a buy rating.

Tesco stock price technical analysis

TSCO stock chart | Source: TradingView

Technicals are also relatively bullish on Tesco shares despite the ongoing retreat. It has formed a descending channel since February and is slightly below its upper side. This channel could be part of the bullish flag pattern, a common continuation sign.

The stock continues to trade above its 200-day moving average, signaling that the long-term uptrend remains intact. Unless it breaks below this level, the chances of a bullish rebound remain elevated. In that scenario, the shares could retest their year-to-date high of 507p.