Broker snap: Margins 'unsustainable' at Tesco, HSBC downgrades

2nd Dec 2013 10:43

Tesco's share price was firmly lower on Monday morning after analysts at HSBC downgraded their rating on the stock from 'neutral' to 'underweight'.The bank also cut its target price for the shares from 400p to 340p.HSBC said that Tesco's current margin targets are unlikely to be maintained and that forecasts will have to be reset."We believe a 5.2% UK operating margin is not sustainable, and that aiming for any margin is the wrong strategy."In our view, a margin fall in inevitable and a margin reset is necessary. We advocate Tesco slashing its margin to 2-3%."The bank has reduced its earnings per share (EPS) target for this year (ending February 2014) by 1% to 36p and for next year by 4% to 31.5p.The stock was down 2.83% at 338.12p by 10:37.BC