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BT (LSE: BT.A) and Tesco (LSE: TSCO) shares have had their ups and downs, but lately they’ve been pointing the right way.
Tesco lost its sense of direction under Philip Clarke, who quit in 2014, while BT became a huge, sprawling organisation that seemed to lose sight of what it was supposed to be doing.
But BT has since spent billions transforming its network while simplifying the group and selling non-core operations. Openreach’s full-fibre network now reaches more than two-thirds of UK premises and BT’s targeting 25m premises by December.
FTSE 100 recovery stocks
Tesco has refocused on its core supermarket operation, sharpened prices and made its Clubcard a formidable competitive weapon. It now has 28% of the UK grocery market and over 23m Clubcard households. 2025 results showed sales up 4.3%, while free cash flow jumped 11.8% to £1.96bn.
Over three years, the share-price performances has been eerily similar, both up 75%.
Lately though, their paths have diverged. Tesco’s up a modest 10% in the last year, although that’s a marked slowdown after its strong run. Adjusted operating profit rose just 0.6% last year, as Tesco invests heavily in prices and service.
BT shares are down around 3% over 12 months. Latest full-year figures showed normalised free cash flow falling 6% to £1.51bn, while capital spending rose 6% to £5.13bn. The board’s spending heavily today in the hope of generating much stronger cash flows tomorrow.
That helps explain their similar trajectory. Both businesses have moved from recovery stories towards proving they can deliver sustained growth.
The valuation gap
At first glance, BT looks cheaper. Its trailing price-to-earnings ratio is 11.1, against 15.8 for Tesco. Their forward P/Es are pretty similar. Tesco’s higher rating reflects its stronger recent performance, more dependable market position and impressive cash generation.
BT offers a little more income with a trailing dividend yield of 4% while Tesco is 3.1%. On a forward basis, their yields are 4.21% and 3.36% respectively.
The telecoms giant still carries £20bn of net debt while Tesco reported net debt is half that, at £10.6bn. But £7.9bn of this is lease liabilities, so I’m less worried about its balance sheet than BT’s.
BT has plenty going for it. Fibre demand’s rising, customer satisfaction’s improving and management expects normalised free cash flow to reach about £2bn in 2027 and £3bn by the end of the decade. It aims to cut headcount by 55,000 too, something Tesco can’t do.
Promising outlook
The risks are also obvious. Telecoms is fiercely competitive. Despite Openreach gaining 574,000 customers, it also lost 192,000 of them in Q1.That’s still a big drain.
Tesco faces fierce supermarket competition and thin margins, and the cost-of-living crisis looks set to drag on and on. Rivals Aldi and Lidl are a threat, but no longer feel existential.
Both FTSE 100 giants are worth considering for long-term investors. Tesco’s sheer dominance is impressive but, on balance, I’d favour BT. It offers a cheaper entry point, higher yield and more potential if it hits those ambitious 2030 targets.
It’s a close call but, on balance, I’d favour BT. But I can also see more whizzy alternatives on the FTSE 100…
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Harvey Jones does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
