Tesco share price is up by 2% as the market refocuses on the new normal in the United Kingdom after the government announced a new lockdown. The stock has outperformed the FTSE 100 index, which is down by 0.15%. Other companies like Ocado, Just Eat Takeaway, and Sainsbury have also done well.
Tesco has been among the biggest beneficiaries of the coronavirus pandemic in the UK as evidenced by the first and second-quarter earnings. In the first quarter, the company’s total revenue rose by 9.2% to £12.2 billion. This increase was driven by the UK and ROI divisions while the Tesco Bank lagged.
In total, in the first half of the year, Tesco’s revenue rose by 6.6% to £26.7 billion. That increase was mostly because of the 8.6% increase of its UK retail business. Its digital sales have also been a key driver in its business.
However, Tesco share price has not reflected on these strengths since the shares have dropped by more than 20% this year. The lagging performance has been because of the rising costs of its online business, which has eaten away some of its profitability.
Today, Tesco stock is rising because of the latest announcement by the government that it will implement a strict lockdown. Investors believe that this move will lead to increased demand for Tesco’s products, especially through its digital channels. Most importantly, the increased revenue will be at no increased cost since the company has already boosted its delivery channels.
So, will the Tesco stock continue rising? In general, most analysts believe that the company’s shares has some positive catalysts, including the current lockdown and the rising odds of a Brexit deal. Analysts at Shore Capital, Morgan Stanley, Jefferies, UBS, and Credit Suisse have a buy rating on the stock.
Indeed, in reports published last week, Bloomberg cited sources who said that a deal is close. In fact, the two sides have already started drafting some sections of a deal. If it happens, it will be a positive thing for Tesco because it will remove the risk of higher costs of European imports.
On the four-hour chart below, we see that Tesco share price has gapped higher to a high of 210p, which is ~4% higher than last week’s low of 201p. The price is at an important resistance as shown by the green arrows. It is also above the 15-day and 25-day exponential moving averages. Most importantly, Tesco shares are approaching the first resistance level of traditional pivot points. Therefore, in the immediate short-term, I suspect that the price will continue rising. However, a move below 200p will invalidate this trend.
