Both Marks and Spencer (LSE: MKS) and Tesco (LSE: TSCO) shares are performing well at the moment. Over the last year, they’ve risen about 50% and 24%, respectively.
Wondering which shares are looking most attractive today? Let’s compare them and try to find out.
Which business has more momentum?
Let’s start with a look at which business is performing better today.
Looking at analysts’ forecasts, Marks and Spencer’s revenues are expected to increase 3.7% this financial year (ending 31 March 2025). That compares to growth of 2.4% for Tesco (its financial year ends on 28 February 2025).
As for earnings per share, Marks and Spencer is expected to generate growth of 14%. That compares to 3% for Tesco.
So, Marks and Spencer is the clear winner here. Not only is it growing its top line faster, but its earnings growth is expected to be far superior to that of its peer.
Which shares are cheaper?
Moving on to valuation, Marks and Spencer shares currently trade on a price-to-earnings (P/E) ratio of 11.2. Meanwhile, Tesco shares sport a P/E ratio of 12.1.
So, Marks and Spencer is the cheaper stock.
It’s worth noting that the average analyst price target for Marks and Spencer is 18% higher than the current share price. However, for Tesco, it’s only 12% higher than the current price.
Overall, Marks and Spencer looks to have more potential for capital gains.
Who has the highest dividend?
Tesco is the winner when it comes to dividends, however.
Currently, its shares yield about 4.1% By contrast, the yield on Marks and Spencer shares is only 1.9%.
Do note that next financial year, Marks and Spencer is forecast to raise its payout by 25% versus 9% for Tesco. So, the yield gap could narrow in the future.
What are the risks?
As for risks, both companies face them.
I think the biggest risk for Tesco is that customers move to lower-cost supermarkets like Lidl and Aldi. Marks and Spencer may be protected from this to a degree as it has a more affluent customer base. These customers are less likely to be impacted by the cost-of-living crisis.
For M&S though, the biggest risk might be competition in the clothing space. It’s having a lot of success in clothing at the moment, but there’s no guarantee that this will continue. Rivals new and old are everywhere.
The winner?
Putting this all together, it’s a close call but the winner for me is Marks and Spencer. It’s the stock I’d buy today if I was looking to snap up one of these blue-chip retailers for my portfolio.
I do think there’s a lot to like about Tesco shares right now. The valuation is very reasonable and the dividend yield is attractive. But in terms of potential for overall returns (gains and income) in the years ahead, I think Marks and Spencer has the edge.
This post was originally published on Motley Fool
