Tesco (LSE: TSCO) shares have gained 35% over the past five years, though the price has been a bit volatile along the way.

Pressure on the retail sector has had an effect on Tesco in recent times. But against that, investors often see companies selling essentials as safe havens in times of stock market uncertainty.

Tesco has held on to its market-leading position as number one in the UK groceries business. In fact, the latest Kantar survey showed market share actually growing to 28%. Tesco seems to be holding off the threat of competition from cheapies like Aldi and Lidl nicely enough.

2026 outlook

We’re increasingly seeing price competition creeping back to our high streets again. So what’s the outlook like for Tesco in the current year and beyond?

A first-quarter trading update due on 12 June will give us an idea how the current year is starting out. At 2024/25 results time, the company told us it expects adjusted operating profit for the 2025/26 year within a range of £2.7bn to £3.0bn.

That’s a little below the £3,128m in the year just ended, and reflects “a further increase in the competitive intensity of the UK market” seen in the first few months of the year.

Currently, broker forecasts show that turning into earnings per share (EPS) of around 26p. That would be approximately 12% ahead of the 23.13p diluted EPS figure reported for 2024/25. Maybe it’s a bit optimistic considering the company’s own outlook? It can sometimes take months for broker updates to feed through.

Further ahead

City analysts expect earnings to grow to 32p per share by 2028. And that would be an impressive 38% rise in just three years. They must surely have factored several optimistic possibilities into that. Interest rates should fall further in the next three years. Where their new steady level will be remains to be seen, but I can’t see us getting back close to those lovely old 0.5% levels for quite a long time.

I think it would also need today’s US-led trade wars to settle down, and for the economic growth outlook to get back to strength. Will those both happen by 2028? Maybe I’m an optimist, but I put my investment money on it however long it takes.

Do I think we should consider buying Tesco now, on the back of these upbeat forecasts? Well, I can’t remember a time when I haven’t had Tesco down as a candidate buy on my list. Every time I have money to invest though, I seem to find something I like better. I’m still bullish, as always.

Valuation

We’re looking at a forward price-to-earnings (P/E) ratio of around 14.5, very close to the FTSE 100 average. And it could drop to 12 by 2028 if the analysts have it right.

With valuations like that, and dividend yields of around 3.5%, I can understand why Tesco shares hold a cornerstone position in so many Stocks and Shares ISAs. I’m considering finally adding some to mine.