Are Tesco shares exceptional buys today?

Although known for its stability, Tesco (LSE:TSCO) shares have barely moved over the past five years. In fact, the stock even underperformed the broader stock market by some margin. So, can Tesco still be considered a good investment?

Test loyalty

Consumer staples businesses like Tesco are known to be good stocks to buy during a crisis due to their inelastic business model. As a result, the stock has been able to pull off an incredible performance during the pandemic, and is even holding up in the current cost of living crisis.

This is partly due to its dominant position as the UK’s largest supermarket. The company has had a relatively stable market share throughout the past year, and this is evidenced by its popular Clubcard scheme. In fact, Tesco is the only top grocer to have increased its market share from pre-pandemic levels.

Consequently, customers have expressed a high level of satisfaction, which has led to sales growth. After all, the company reported strong Christmas numbers in its last trading update. However, all this will be tested again as FTSE 100 The stalwart gears up for another round of challenges.

Food inflation continues to grow at unprecedented levels. Therefore, Tesco must continue to compete with Aldi and Lidl, as consumers flock to discounters for better deals. Additionally, the devaluation of Clubcard points will not help retain cost-conscious customers.

A special treat?

Having said that, where Tesco disappoints in earnings, it makes up for it in dividends. Blue-chip stocks have a rich history of paying lucrative dividends, especially when they perform well. Payments during the pandemic are proof. Therefore, this could be a reason for investors to buy Tesco shares.

With energy prices also falling, the grocer’s valuation could see some improvement during the year, which could boost dividend yields. In addition, the group is rumored to be exploring the sale of its banking arm. The deal could see the retailer pay another special dividend in the future.

Are Tesco Shares worth adding to my basket?

That said, as profitable as it may have been, it’s no shame that Tesco seems to have a substandard balance sheet. These short-term assets cannot cover total liabilities, even though they are desirable for retailers.

Even so, average returns on assets (2%), equity (6%), and capital employed (7%) over the past decade have not helped the investment case. What’s more, the price multiples aren’t cheap either, with most being higher than the industry average.

However, many brokers remain bullish on Tesco shares. Jefferies, JP Morgan, and Shore Capital all have ‘buy’ ratings. The stock also has an average price target of £3.08, which is roughly 19% above current levels.

Ultimately, there is no doubt that Tesco could be a safe stock to buy for investors looking for stability while benefiting from some good dividends. However, this is nothing out of the ordinary as there are other UK stocks that are generating higher share prices and dividends. So, I won’t buy it today.