Tesco and M&S Named as BofA’s Top UK Food Retail Picks

BofA Securities remains positive on the outlook for UK food retail, highlighting Tesco and Marks & Spencer as its two preferred stocks within the sector.

The investment bank has maintained its “buy” ratings on both companies, pointing to resilient consumer demand, improving grocery volumes and continued opportunities for earnings growth. BofA currently has a 540p price target for Tesco and a 440p target for Marks & Spencer.

Tesco Outlook Remains Resilient

BofA expects Tesco to deliver a solid first-half performance, supported by improving conditions across the UK grocery market.

Food inflation moderated during the second quarter, while grocery volumes began to recover. BofA forecasts Tesco’s group revenue to rise by around 2.6% during Q2, with UK sales also expected to increase by 2.6%.

However, recent market-share data has been slightly weaker. Tesco moved from gaining market share earlier in the year to modest losses from May onwards.

BofA believes this can partly be explained by tougher year-on-year comparisons following the disruption experienced by competitors M&S and Co-op last year.

Key areas supporting Tesco’s investment case include:

• Strong market scale and brand recognition
• Continued popularity of the Tesco Clubcard
• Competitive pricing across a broad product range
• Ongoing investment in digital services and customer experience

For the first half, BofA forecasts adjusted operating profit of £1.73 billion, representing growth of around 1.5% year on year.

For investors, Tesco’s relatively defensive business model could remain attractive if wider economic growth slows, although wage inflation and operating costs may continue to pressure margins.

M&S Food Drives Growth Expectations

BofA sees greater upside potential within Marks & Spencer’s Food division.

The broker expects M&S first-half revenue to rise by around 13% to £8.98 billion, while adjusted profit before tax is forecast to reach £396 million, up from £184 million during the previous-year period.

Its Food sales forecasts have also been upgraded to:

• £19.1 billion for FY27
• £20.0 billion for FY28

Growth is being supported by new store space, improving like-for-like sales and increased exposure to convenience shopping and online retail through Ocado.

The main risk remains M&S’s Fashion, Home & Beauty division. BofA believes the next stage of its turnaround could prove more challenging, particularly as the company works to improve its product offering, online sales and store network.

Outlook for Investors and Traders

For longer-term investors, both Tesco and M&S offer exposure to a relatively resilient UK consumer sector, although their growth drivers differ.

Tesco’s investment case centres more heavily on stable grocery demand, scale and consistent execution. M&S offers potentially stronger growth, particularly through its Food division, but also carries greater execution risk as it continues its wider transformation.

For traders, upcoming earnings announcements, UK food inflation data, consumer spending figures and market-share updates could all influence short-term price action.

Overall, BofA remains constructive on both stocks, suggesting UK food retail continues to offer selective opportunities despite pressures from operating costs and changing consumer behaviour.

Sources: (Investing.com, Reuters.com)