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Investing.com -- Deutsche Bank (ETR:DBKGn) has initiated coverage on the U.K. food retail sector, issuing a “buy” rating on Tesco (LON:TSCO) with a 470p price target and a "hold" rating on Sainsbury ’s (LON:SBRY) with a 310p target.
The brokerage sees Tesco as better equipped to manage current market pressures, while Sainsbury’s faces more operational headwinds.
In the note, analyst Benjamin Yokyong-Zoega wrote that while competitive dynamics and cost pressures persist across the sector, both Tesco and Sainsbury’s have managed to defend their value propositions and preserve market share.
Tesco stands out for its operational efficiency, scale and purchasing power. Deutsche Bank highlighted the company’s growth in online channels and the strength of its Clubcard loyalty programme, which it sees as long-term monetisation levers.
Tesco’s shares trade on roughly 15x 2025 price-to-earnings, and the 470p target implies around 10% upside and a total shareholder return above 15%.
Sainsbury’s, which has sharpened its focus on food and value, has made progress but continues to operate with lower margins, weaker sales densities and lower employee efficiency.
Deutsche Bank said this may make the retailer more vulnerable in the current environment.
The bank also flagged Sainsbury’s exposure to Argos as a cyclical risk. The stock trades on about 14x 2025 price-to-earnings, with the 310p price target indicating limited upside.
Deutsche Bank’s earnings forecasts for Tesco are around 5% ahead of consensus, with projected 8% compound annual growth in EPS over three years, based on 3% sales growth and a 4.4% EBIT margin in FY28. Forecasts for Sainsbury’s are broadly in line with the market.