Firing on all cylinders as competitors struggle; consensus well underpinned; initiate at Outperform. Tesco looks as well placed as we have seen it in 15 years While Tesco has performed strongly YTD, we think its positioning, momentum and strategy have not been in a better place in the 15 years we have followed the stock. To summarise: its pricing vs the discounters has not been sharper; its balance sheet stronger and its market share momentum higher (now unaided by capital intensive store expansion). Competitively, we''ve not seen its full line peers so capital constrained, or the discounters adding fewer stores. On the regulation side, July''s CMA review essentially gave the industry a clean bill of health. While consensus margin estimates look well underpinned Against this backdrop, we see consensus looking for 5bps of UK EBIT margin growth in FY26e/27e, following c.40/20bps in FY24/25e. With our forecast that wage inflation will be c.30bps less of a headwind in FY26e than in FY25e and the cost savings programme expected to continue, our profit bridge suggests that with flat gross margins we see room for c.20-30bps margin expansion. Our forecast of 15bps in the UK, leaves us 2%/6% ahead of FY26e/27e EPS consensus. Valuation We value Tesco using a DCF methodology (8.5% WACC, 1% TG). We have a 445p PT and initiate with an Outperform rating. On our debt adj FCF to EV and returns based valuations Tesco screens attractively, while looking to the 10 years prior to 2012 we see a period when a strong Tesco traded on a 17x PE, a 30% premium to the market, vs our TP implied PE of 14.7x (c. 10% premium). Where we could be wrong Key risks are material step in price investments by a competitor; a shock to the UK consumer hitting volumes and driving trade down; a minimum wage increase above our expectations. Also see FOOD RETAIL: Great British Aisles published today.