Credit Suisse upgrades Tesco, downgrades Sainsbury's

(Sharecast News) - Credit Suisse switched its preference from Sainsbury's to Tesco on Wednesday as it took a look at the UK food retail sector.
The bank said it was revisiting three "key disruptive forces": the shift to online; food delivery; and the discounters.

"We believe the market is far more aware of the risks derived from lockdowns, but giving zero value to Tesco's online sales growth and extra sales and operating leverage," it said.

CS lifted Tesco to 'outperform' from 'neutral', arguing that its recent underperformance creates an attractive entry point.

The bank said Tesco has turned "value-accretive" and it expects it to remain so.

"We highlight that a business with 81% growth, £6bn sales and a 1.2% post-cannibalisation EBIT margin deserves a more than £1bn valuation on even conservative online metrics, while the market has, in our view, assigned zero value to ongoing online success.

"We believe an unimpressive set of FY results (due on 14 April) is already reflected in current valuations, while upside into next year is not."

Meanwhile, CS downgraded Sainsbury's to 'neutral' as it said internal improvements appear largely priced in.

At 1055 GMT, Tesco shares were up 1.3% at 227.30p, while Sainsbury's shares were down 1.2% at 226.40p.