Source: Sharecast
The bank noted that its concerns since it downgraded the sector back in September were based on disinflation triggering lower like-for-like sales, impacting margins and valuations. JPM said it sees this as recurring in 2024/25.
"We see Tesco’s outperformance previously linked to executed self-help and macro tailwinds, therefore unlikely to be structural/sustainable over time without incremental investment," it said.
The bank noted that Tesco shares are up 25% year-to-date, versus its price target indicating 15% downside.
"Long positioning is crowded, whilst Tesco is now past peak positive newsflow/LFLs/margin/free cash flow/capital return cycle," it said.
In the same note, JPM also downgraded Germany’s Metro to ‘underweight’ from ‘neutral’ and cut the price target to €4.95 from €5.02.
At 1020 GMT, Tesco shares were down 1% at 282.80p.