Tesco Shares Price Prediction June 2021 – Is Tesco a Good Share to Buy?

While the share markets have recovered sharply in 2021, the Tesco share price is sagging and currently down 21% so far in the year. What’s the forecast for Tesco shares in 2021 and is it a good stock to buy in June 2021?

Tesco shares are down 27% from their 52-week highs and are currently in a bear market territory, having fallen over 20% from the peaks. The shares are only about 7% higher than their 52-week low price of 217.10p.

Tesco shares technical analysis

Tesco shares are trading below the long-term moving averages including the 100-day SMA and 200-day SMA. However, earlier this month, the stock crossed above the 50-day SMA which is a bullish technical indicator. The shares have a 14-day RSI (relative strength index) of 63.1 which is getting near over overbought territory. RSI values above 70 signal overbought positions while values below 30 are associated with oversold positions.

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Recent developments

Last month, Tesco announced a partnership with plant-based meat company Beyond Meat to produce vegan meat products. “We hope that the launch of these new meals will encourage more people to give plant-based food a try. Early feed back from people who took part in food trials for the new range was that they did not believe the meals were vegan,” said Tesco in its release.

Partnership with Beyond Meat, which is among the most visible names in plant-based meat products, is a positive development for Tesco. Last year, Tesco had said that it intends to increase the sales of plant-based meats by 300% by 2025.

In May only, Tesco reported its earnings for the fiscal year 2020-2021. The company’s total sales after excluding the volatile fuel sales rose 7% to £53.4 billion in constant currency terms. The company’s like-for-like sales rose 6.3% at the group level. However, the company’s profits tumbled 19.7% to £825 million in the year due to higher COVID-19 related costs.

Tesco online sales soar

Like many other retailers, Tesco has been ramping up infrastructure to increase its online sales. In the last fiscal year, its UK online sales rise 77% to £6.3 billion. Notably, despite almost all the retail companies placing great importance on e-commerce, Primark, another UK-based retailer, has taken a different view and is instead focusing on the brick-and-mortar model only.

Growth slowdown

One of the reasons, Tesco shares have been weak in 2021 is because the growth rates are expected to come down. During the earnings release, Tesco also admitted to a slowdown in topline growth in 2021 amid easing COVID-19 restrictions. As consumers venture out amid easing lockdowns, retail sales might not keep pace with the growth that we saw last year. Travel and other outdoor entertainment will take a larger pie of consumer wallets this year.

However, Tesco’s profitability is expected to bounce back in 2021. During the earnings release, it said that “we expect a strong recovery in profitability and retail free cash flow as the majority of the additional costs incurred as a result of the pandemic in the 2020/21 financial year will not be repeated.”

Tesco share price forecast

According to the estimates compiled by the Financial Times, Tesco shares have a median target price of 297.50p which is a 28.4% premium over current prices. The stock trades 4% below its lowest target price of 241p while its highest target price of 399p is a premium of 72% over current prices.

Of the 17 analysts covering the shares, 14 rate them as a buy or higher while two rate them as a hold. One analyst has a sell rating on Tesco shares.

Is Tesco a good stock to buy?

Tesco shares currently trade at an NTM (next-12 months) PE multiple of 12.7x. The multiple has averaged 14.2x, 16.3x, and 15.3x over the last three, five, and ten years respectively. The current valuation is a discount to the historical multiples which looks unwarranted.

A growing percentage of online sales in its total sales mix will support the multiples and also boost the margins in the long term. Also, in the medium term, the company expects Tesco Bank to become profitable this year.

Overall, Tesco shares look a good buy after the recent underperformance. The company has also been transforming the business and has exited the Asia operations. Also, the shares have a dividend yield of 4.3% which looks very attractive. The company’s profitability could end up surprising on the upside in 2021 amid a reasonably strong sales outlook. Also, lower COVID-19 related costs would help it saves millions of pounds in 2021.

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