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Investing.com -- RBC Capital Markets has named J. Sainsbury (LON:SBRY) as its preferred U.K. food retail pick, citing valuation appeal and continued momentum in premium food.
While Sainsbury’s has trailed Tesco’s share price performance this year, analysts expect it to deliver earnings per share (EPS) growth of around 6% between calendar years 2025 (CY25) and 2027, along with a high single-digit total cash return.
Premium food has been a bright spot in the sector, with both Tesco PLC (LON:TSCO) and Sainsbury’s posting double-digit growth in their premium private-label ranges.
RBC expects the segment to “continue to grow at least at a high single digit compound annual growth rate (CAGR) over the medium term,” supported by food innovation at leading brands.
This shift has been helped by a rotation in consumer spending from dining out to eating at home, partly driven by higher restaurant costs and healthy eating trends.
RBC notes that Tesco’s market share gains have been strong but are reflected in its 15x CY25 P/E multiple.
Sainsbury’s, meanwhile, trading at 13x P/E, “should benefit from space growth and space restructuring from H2 this year” and a recent senior hire in retail, logistics and supply, analysts said.
Asda’s push on pricing has so far had “less impact than we expected,” with RBC’s consumer survey ranking Tesco and Sainsbury’s ahead of Asda on range and product availability.
RBC raised its full-year 2026-27 EPS forecasts for both grocers by around 1-2%, lifting its Sainsbury’s price target to 315p from 305p, based on a discounted cash flow analysis that assumes a 10-year sales CAGR of about 2% and a terminal operating margin of 3%.
“We note a widening in the valuation gap between TSCO and SBRY more recently and so we see opportunity for SBRY to close the gap with continued good execution,” analysts said.