JP Morgan lifts Ocado target to 290p, says shares price in site closures

JP Morgan has raised its target price for Ocado Group PLC (LSE:OCDO) to 290p from 245p, arguing the market is valuing the technology group as if its customers were shutting warehouses rather than opening them. Marcus Diebel reiterated an overweight rating on the stock, which has fallen 7% so far this year against a 9% gain for the FTSE 100. The shares have swung between 289p and 159p over that period, a range the analyst attributes to what he calls the asymmetric, event-driven nature of the investment case. Ocado licenses its warehouse automation technology to grocery retailers around the world, having largely stepped back from being a retailer in its own right. Diebel said the share price does not reflect the value of contracts the company has already signed, let alone anything new. On his estimates, the current valuation implies further site closures rather than incremental openings. Two things determine the direction of the shares in his view. The first is a steady flow of new deals across both centralised fulfilment centres, the large robotic warehouses that pick online grocery orders, and store-based automation, a smaller-scale system installed within existing supermarkets. The second is delivering positive underlying cash flow by the end of this year, and on a full-year basis by 2027. Recent news of a large new fulfilment centre customer, alongside what Diebel described as a more constructive tone from chief executive Tim Steiner on a recent investor call, reinforced his view that momentum is improving. The note includes a deep dive into rival automation systems, with the analyst concluding that Ocado retains the ability to outbid competitors on new contr...