Analysts at Citi have reaffirmed their buy rating on Tesco PLC (TSCDY) shares following the company’s third-quarter trading update. Despite group like-for-like sales coming in below Citi’s internal forecasts, the brokerage argues that the share price reaction has been overdone, citing Tesco’s robust balance sheet, dividend yield above 4% and ongoing cost efficiencies across supply chain and procurement as key drivers for long-term value creation.

Group like-for-like sales for the 13-week third quarter rose by 3.1%, slightly below Citi’s 3.4% estimate and Deutsche Bank’s 3.9% projection. Over the extended 19-week period to early January, Tesco reported a 2.9% increase in like-for-like sales, reflecting steady growth in both its core U.K. supermarkets and expanding convenience network. Grocery inflation shifted by approximately 1.5 percentage points year-on-year, supporting underlying volume growth of around 1.6%.

During the crucial four weeks leading up to Christmas Eve, Tesco processed over 2.0 billion items and generated more than GBP 6.0 billion in revenue. Customer satisfaction scores improved by 120 basis points year-over-year, driven by the retailer’s investments in private-label innovation and digital home-delivery slots, which saw a 25% increase in active users compared to the prior Christmas period.

Tesco’s U.K. market share reached its highest level in over a decade, following 32 consecutive winning periods, according to management commentary on the earnings call. This milestone reflects gains against key competitors, with Citi noting that Tesco’s leading online grocery platform—now covering more than 98% of U.K. postcodes—remains a significant barrier to entry for discounters and regional grocers alike.