Tesco and M&S Tapped as Top UK Retail Picks by BofA Securities

Bank of America Securities has identified Tesco and Marks & Spencer as its two top picks in the UK food retail sector, maintaining "buy" ratings for both companies. In a Pan-European Food Retailing report, the bank pointed to resilient consumer demand for groceries, strong execution, and potential for further growth as key drivers for its positive outlook.

Tesco's Outlook Supported by Scale

BofA expects Tesco to report a solid first-half performance, with operational trends aligning with management's expectations. The bank noted an improving UK grocery environment in the second quarter as food inflation moderated and shopping volumes recovered. It retains a price objective of 540p for the stock.

Key forecasts and observations for Tesco include:

• Group revenue growth of 2.6% in the second quarter.
• First-half adjusted operating profit of £1.73 billion, a 1.5% year-on-year increase.
• BofA attributes recent modest market-share losses to difficult year-over-year comparisons rather than a weakening of its competitive position, highlighting the strength of its scale and Clubcard loyalty program.

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M&S Growth Driven by Food Division

For Marks & Spencer, BofA identifies the Food division as the primary source of upside, forecasting continued market-share gains and growth from new store space. The bank maintained its price objective of 440p for M&S shares.

The analysis projects significant growth in the first half, with revenue expected to rise 13% to £8.98 billion and adjusted profit before tax (PBT) forecast to reach £396 million, more than double the £184 million reported in the prior-year period. BofA also upgraded its Food sales forecasts for fiscal years 2027 and 2028. While optimistic on Food, the report expressed some caution regarding the Fashion, Home & Beauty division, noting that the next phase of its turnaround will be "more demanding."