Investors expected a bigger guidance raise from Tesco says Jefferies

Investing.com — Tesco ‘s (LON:) results have drawn mixed reactions from analysts, particularly those at Jefferies, who flagged that investors had expected a bigger upgrade in the company’s guidance following its strong results. 

Although Tesco reported a commendable 7% EBIT beat for the first half of 2024, surpassing consensus expectations, the subsequent guidance raise was more conservative than what the market had anticipated.

This restrained upgrade left some investors somewhat underwhelmed.

Jefferies noted that while the figures flag Tesco’s strength, particularly with a 10% earnings per share  beat, the modest increase in full-year EBIT guidance—now set at “around £2.9 billion,” up from “at least £2.8 billion”—did not meet the more ambitious expectations. 

This caution from Tesco contrasts with the stock’s strong momentum in the lead-up to the report, having risen by 24% year-to-date and 17% over the past three months.

Despite the somewhat conservative guidance adjustment, Jefferies emphasizes Tesco’s ability to generate free cash flow and income, noting that this remains a standout feature. 

The brokerage still projects the high end of Tesco’s retail FCF range of £1.4 billion to £1.8 billion as most likely, given the company’s delivery of £1.26 billion in H1.

However, this upward revision may have fallen short of the more optimistic projections by some in the market, leading to a tempered response.

The analysts acknowledged that Tesco’s strong performance across multiple divisions, such as its robust UK grocery sales and improving international operations, particularly in Ireland and Central Europe, continues to position the retailer favorably. 

But they also mentioned that the retailer’s slight underperformance in areas like fuel and the Booker wholesale division, which lagged behind expectations.

Shares of the retailer were up 1.8% on Thursday.