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Can Tesco shares remain strong ahead of its trading statement?

Tesco has seen its shares surge over the last two months, but can the bullish momentum continue as it prepares to release its Christmas trading statement?

Tesco Source: Bloomberg

When does Tesco release its trading statement?

Tesco is expected to publish its Christmas statement on 13 January.

Tesco statement – what to expect

Tesco follows on from Morrisons and Sainsbury’s last week with its trading update for the end of 2020. Both of its rivals saw a solid increase in comparable sales, so the pressure will be on the UK’s largest supermarket to announce a similar improvement.

While consumers have returned to big UK supermarkets in droves, they have also sought to do more online shopping, something that eats considerably into margins. Tesco investors will want to see whether the UK market leader has succeeded in increasing sales overall in order to compensate for higher costs.

Tesco shares – what do the brokers say?

According to Reuters, of the 16 analysts covering Tesco, 11 have ‘buy’ recommendations, with three ‘holds’ and two ‘sells’, reflecting a bullish consensus on the shares. The current median target price is 275p.

Tesco shares – technical analysis

Tesco shares, like much of the UK equity market, have soared since the end of October, rallying from 203p to 250p and hitting levels last seen in February 2020. The price suffered a pullback from February and registered a series of lower highs on the daily chart.

This has now ended, with the bounce through early November clearing resistance and establishing higher highs in November and then just last week. In addition, the pullback in mid-December formed a higher low as it bounced from the 200-day simple moving average (SMA), currently 221p.

Tesco daily price chart Source: ProRealTime
Tesco daily price chart Source: ProRealTime

Like many markets, the shares do look overextended in the short term, around 8% away from the rising 50-day SMA of 226p and a similar distance from rising trendline support. This poses a risk of a pullback in the wake of the statement, although the longer-term view looks more bullish than at any point since March.

Tesco well set for further gains

Beyond the Covid-19 pandemic, the outlook for Tesco would seem to be more promising. The economy will begin to recover as the vaccine distribution programme hits a high gear, and with Brexit out of the way (or at least out of the headlines) UK stocks will become more attractive for foreign investors. Given its still-commanding position in the UK supermarket sector, and a more positive trend in its share price, Tesco is well placed to benefit.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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