Deutsche Bank starts Tesco at 'buy', Sainsbury's at 'hold'

(Sharecast News) - Deutsche Bank initiated coverage of Tesco and Sainsbury's on Tuesday with 'buy' and 'hold' ratings, respectively, as it said it was constructive on the food retail sector. "Competitive dynamics and cost pressures continue to shape the sector, however the UK's largest supermarkets, Tesco and Sainsbury's, are managing to defend their value and market share positions," the bank said.

"We see Tesco as better placed to navigate these dynamics, backed by operational efficiency, scale and purchasing power.

"Online growth and powerful Clubcard flywheel are also competitive advantages with long-term monetisation opportunity."

Deutsche Bank said Sainsbury's re-focus on food and value has strengthened its position.

"However, lower margins, sales densities and employee efficiency may make current dynamics tougher to navigate," it said. The Argos exposure also raises cyclical risks, DB added.

The bank said its Tesco earnings per share forecasts are around 5% ahead of consensus but it's broadly in line for Sainsbury's.