Five days ago, Tesco PLC reported a strong first half, raising its full-year adjusted operating profit forecast to between £3.15 billion and £3.30 billion, up from a previous estimate of £3.0 billion.
Tesco’s share price climbed above 500p after this announcement, which also included an expanded £950 million share buyback program. The stock closed at 511p on Monday, just 1% below its 52-week high of 516.2p.
This performance prompts questions on whether Tesco share price can reach new highs and if the 500p level will hold as support.
Will We See New Year-to-Date Highs Soon?
Tesco’s share price is currently barely 1% shy of its yearly peak. Analysts see a potential upside of roughly 3.6%. The ongoing share buyback creates steady demand. Tesco has already bought back £550 million since April and will continue until April 2027.
The £950 million buyback represents roughly 3% of the company’s £31.9 billion market value. Free cash flow grew 21% to £1.57 billion in the first half. Together, this strengthens both the fundamental and technical outlooks, especially as the enhanced buyback program boosts earnings per share.
However, investors may have already factored in much of this positive news. Tesco’s also handled competitive pressures well with its Aldi Price Match initiative and Clubcard Prices. These efforts have helped maintain market share in premium categories. For instance, its Finest range grew 8.9%.
If Tesco sticks to its revised profit guidance, particularly through the busy Christmas trading period, the share price could climb higher. On the other hand, any drop in UK like-for-like sales or a general market downturn could slow that progress down.
Is 500p Support Secure?
The 500p level holds significance. Previously a technical resistance point, it now provides important psychological support. The stock’s climb past this wasn’t mere speculation, but it was driven by strong earnings growth, establishing 500p as a solid demand zone.
Volume increased during the price rise, and the shares have held those gains since. Should the price fall and remain under 500p, it could signal a failed breakout, potentially pushing it back to the mid-470p level seen before the recent results.
Beyond strong earnings, two other factors currently bolster Tesco’s market standing. First, the company’s increased £950 million buyback, alongside consistent dividend growth, firmly establishes its reputation as a significant cash generator within the FTSE 100.
Second, Tesco doesn’t just sell groceries, but it also earns substantial revenue from high-margin advertising. They achieve this by analyzing Clubcard data, which helps diversify their income beyond traditional supermarket sales.
Stronger first-half profit, a raised full-year outlook floor and an enlarged £950 million buyback programme lifted investor confidence and drove the stock higher.
The breakout above 500p and solid cash generation improve the odds, provided second-half trading and Christmas performance meet the upgraded guidance.
The 500p level offers strong support, backed by solid earnings growth, a 21% free cash flow increase, and steady market buyback support. However, a decisive close below it would weaken that assessment.