HSBC upgrades Tesco to 'neutral', bad news priced in

8th Oct 2014 11:43

Tesco's stock was back on investors' shopping lists again on Wednesday after HSBC upgraded its rating on the UK grocer from 'underweight' to 'neutral' and lifted its target price from 175p to 195p.Though sentiment is still fragile after a string of profit warnings and an accounting scandal at the supermarket group, the bank said it sees an "improving risk profile".This has been "implied by recent board appointments, decisive action by the chief executive and a share price 52% lower than a year ago", said analyst Dave McCarthy.Tesco has now suspended its fifth executive since revealing that it had overstated its profit guidance for its first half by £250m. The company also said that the boss of catering group Compass and the former chief of IKEA would be joining its board from November, as it attempts to restore confidence amongst shareholders.It was also rumoured that chairman Richard Broadbent would consider stepping down once an independent investigation by Deloitte into Tesco's accounting practices is complete.McCarthy said: "We expect further bad news on accounting, pensions and a re-basing of profits, but believe much of this is now in the price."Focus is shifting to the positive with balance sheet concerns to be addressed (through a rights issue and/or asset disposals) and more senior appointments, executive and non-executive, and probably including a new chairman."He said that there is still likely to be "more pain along the way", but the recent positive news should support the share price.