Tesco Share Price: As High As It Gets For Now

Core Viewpoint - Tesco's interim results showed a positive surprise primarily on the bottom line, but the share price appears to have peaked with limited upside potential at this time [2][3]. Financial Performance - Group revenue increased by 3.6% to £36.04 billion, driven by UK and ROI sales growth of 5.6% to £24.67 billion and 6.4% to £1.54 billion, respectively [3]. - Gross margin improved by 6 basis points to 7.88%, although EBIT margin declined by 9 basis points to 4.65% due to higher labor costs [4]. - Pre-tax profits rose by 2.3% to £1.41 billion, with attributable profit increasing by 2.1% to £1.03 billion, and EPS grew by 6.8% to 15.43p due to share buybacks [5]. Guidance and Market Outlook - Management upgraded its guidance for the year from £2.7-3.0 billion to £2.9-3.1 billion, reflecting stronger-than-expected performance [6]. - The outlook remains contingent on market competition, with expectations of less favorable gross margin growth in H2 due to various external factors [7][8]. - Forecasts for FY26 through FY28 have been slightly reduced due to anticipated slower market share gains and a competitive environment in ROI [9]. Future Projections - Despite the reduction in revenue forecasts, bottom line EPS upgrades are expected due to a favorable margin mix and efficiencies from AI and digital initiatives [9]. - EBIT is projected to be slightly above guidance at £3.13 billion, with EPS CAGR estimated at 11.2% [10]. - The current PEG ratio of 1.4 suggests limited upside for Tesco's share price, maintaining a price target of 450p [10].