The last 12 months have been quite strong for the Tesco (LSE:TSCO) share price. The UK’s largest supermarket chain isn’t particularly known for generating substantial capital gains. But since October last year, the shares have climbed by almost 22%, rewarding shareholders with market-beating returns.
Of course, the question now becomes, could Tesco shares continue to deliver market-beating gains over the next 12 months? Here’s what the experts are saying.
Updated forecasts
For the most part, the analyst coverage surrounding Tesco continues to be quite bullish. In fact, 12 of the 15 institutions following the business have issued Buy or Outperform recommendations. And the list includes investment banks like UBS with a share price target of 500p as well as Barclays and Citigroup with a more conservative 460p forecast.
The average consensus sits at 467.5p – indicating a potential 8.5% investment return when including dividends. This implies that, on average, most analysts think the momentum surrounding Tesco will likely slow towards the usual stock market average.
However, if UBS’s optimistic outlook proves accurate, then further double-digit gains could be just around the corner, generating a profit of £159 for every £1,000 invested today.
So what needs to happen for the Tesco share price to reach 500p?
Digging deeper
The core of UBS’s thesis surrounds Tesco’s impressive resilience against discount retailers. While other large supermarket chains have seen their market share shrink, Tesco’s actually expanded its reach, thanks in large part to its price-matching and Clubcard loyalty schemes.
As a result, the analysts are more bullish on the supermarket’s future earnings growth as well as cash generation. The latter is particularly of interest as it provides more flexibility for management to buy back shares, pushing the stock price higher in the process.
Is this a realistic expectation? It’s certainly plausible, especially since the company recently lifted its full-year operating profit guidance. However, forecasts are never guarantees. And even with its bullish stance, UBS has still highlighted some key risks to consider.
Tesco has so far proven skilful at navigating an increasingly competitive landscape. But fending off discounters could prove more challenging if inflation continues to elevate food prices and push consumers to slow spending.
Even if footfall remains unaffected, shoppers may start to downgrade away from its popular premium range of Tesco’s Finest, resulting in lower gross margins. So even if revenue remains on track, a less favourable product mix could derail UBS’ free cash flow expectations, leading to weaker share price performance.
The bottom line
As a growth stock, I think Tesco shares fall short. While double-digit gains in 2026 are possible, the current macroeconomic climate’s making things quite difficult. However, from an income perspective, this business is a bit more interesting.
A 3.2% yield isn’t as high as other FTSE 100 stocks. But with shareholder payouts growing more than 350% since 2018, that might change over time. And even with the risk of margin pressure, the group seems to be generating more than enough excess cash flow to cover and maintain payouts in a downcycle.
So for investors seeking to diversify their income portfolios into the consumer staple retail sector, I think Tesco is worth a closer look. But it’s not the only one offering promising investment opportunities right now.
