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Tesco vs Sainsbury’s share prices: what’s the better buy?

Competition among supermarket chains in the UK remains high, with Tesco – the largest by market share – navigating the landscape with savvy deals, while Sainsbury’s sales have struggled to the detriment of its share price.

Tesco Source: Bloomberg

The UK grocery market has always been highly competitive, but with discount chains like Aldi and Lidl joining the fray, along with Marks & Spencer ramping up its online presence via its joint venture with Ocado, there is increased pressure on Tesco and Sainsbury's.

But which is the better stock to invest in?

Tesco leads the the way

In these challenging times, Tesco has continually shown why it is, and remains the market leader, completing a £4 billion merger with Booker last year and striking a strategic alliance with French retail giant Carrefour that helped it cut costs and boost sales.

Tesco’s growth strategy has helped drive profits up by 25% to £1.4 billion over its first six months of trading this year, with the company well positioned to generate sustainable growth over the next three years.

Its impressive performance saw it announce an interim dividend of 2.65p a share, representing a 58.7% increase on last year.

Tesco’s share price is up more than 19% since the beginning of the year, trading at 233p as of 13:20 GMT on Friday.

Tesco will report its third quarter and Christmas trading statement on 9 January 2020.

Sainsbury’s sales stabilise, but growth remains an issue

It has been a different story for Sainsbury’s, with sales finally showing signs of stabilising after back-to-back quarterly declines. Group sales fell by 0.2% to £16.8 billion, according to its half-year results.

Unlike its rival, Sainsbury’s plan to merge with Asda to create a business larger than Tesco was blocked by the UK Competition and Markets Authority over concerns the deal would leave millions of shoppers worse off.

However, the supermarket’s Argos integration has been successful and is expected to generate £500 million worth of synergies over the next five years.

But while its cost cutting programme is on track, Sainsbury’s, unlike Tesco, lacks a compelling growth strategy – something which is reflected in its share price.

Sainsbury’s shares are down 19% on a year-to-date basis, trading at 213p as of 13:20 GMT on Friday.

For now, the supermarket’s cost-cutting measures will offset its lack of sales growth, but eventually the company will need to find a way to boost revenues or risk its share price sinking further.

Sainsbury’s will unveil its third quarter results on 8 January 2020.

Looking to trade Tesco, Sainsbury’s and other retail stocks? Open a live or demo account with IG.

Analysts upbeat about Tesco, while Sainsbury’s shares stall

Of the 16 analysts offering 12 month price targets for Tesco the median target sits at 282.50, with a high estimate of 315p and low of 220p, according to data compiled by the Financial Times. Based on Tesco’s current share price, the median estimate represents a potential upside of 21.2%.

Sainsbury’s price trajectory is less optimistic, however. Despite US-based investment bank Goldman Sachs upgrading its rating for the stock to ‘neutral’ in November, it offered a target price of 220p, representing a potential upside of 3.2%.

You can go long or short Tesco or Sainsbury’s with IG using derivatives like CFDs.

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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