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Tesco Share Price Spikes After Strong Earnings – Is it a Buy?

EURGBP
EURGBP

Tesco share price is up by 2.52% as investors react to the strong half-year financial results. The shares are trading at 219p, which is slightly below the intraday high of 225p. They are also among the best-performers in the FTSE 100 index.

Tesco strong earnings

In a statement today, Tesco revealed that its business has thrived this year amid the Covid-19 pandemic. In total, the company’s sales rose from £25 billion in the first half of 2019 to £26.7 billion. That was a 6.6% increase.

Most of this growth was from the United Kingdom, where the sales rose from £22.4 billion to £24.3 billion. Sales in central Europe, where the company has been exiting, declined from £2 billion to £1.9 billion. Equally weak were earnings from Tesco Bank, where sales dropped from £0.6 billion to £0.4 billion.  

In total the company’s operating profit declined from £1.054 billion to £1.00 billion because of the rising costs as costs increased. Profit before tax rose to £551 million. Most importantly, is the fact that Tesco’s online delivery capacity more than doubled. In a statement, Ken Murphy, the firm’s CEO said:

“The first half of this year has tested our business in ways we had never imagined, and our colleagues have risen brilliantly to every challenge, acting in the best interests of our customers and local communities throughout.”

Tesco stock underperformance

Tesco share price has had a difficult year in 2020. Year-to-date, the stock has dropped by more than 14%, meaning that it has underperformed most of its peers. Sainsbury and Morrison Supermarket shares have dropped by 12% and 11%, respectively.

The underperformance is because of the rising competition in the United Kingdom. Also, there are concerns about the company’s rising costs as it invests more on digital operations. Most importantly, its recent pivot to the UK could backfire in case of a no-deal Brexit.

Analysts have remained mum about Tesco share price in recent months. In a recent note, analysts at Shore Capital reiterated their buy rating while those at Morgan Stanley expect it to rise to 276p.

Tesco share price analysis

The weekly chart shows that Tesco share price has been relatively volatile in the past few weeks. Last week, the price managed to move below the ascending trendline that connects the lowest levels in June 2017, December 2018, March 2020, and June, July, and September.

The price remains below the 25-week and 50-week moving averages. Therefore, in the near term, I suspect that the pair will continue falling as bears aim for the next support at 206p.

Tesco stock price technical chart

Tesco Share Price