OCDO: Automation Progress And Kroger Network Changes Will Shape Future Upside Potential

Analysts have trimmed their price target on Ocado Group to 290 GBp from 356 GBp, reflecting marginally lower revenue growth assumptions and a slightly reduced fair value and future P E multiple, despite a modestly lower discount rate.

Analyst Commentary

Street research updates over recent months indicate that, while the absolute price target on Ocado Group shares has been reduced in stages, the prevailing Overweight stance signals that analysts still see upside potential from current levels.

Bullish Takeaways

• Bullish analysts emphasize that the Overweight rating, maintained even as the price target moves down from 437 GBp to 356 GBp and now to 290 GBp, implies confidence that the current share price undervalues Ocado's long term growth prospects.
• The continued premium valuation multiple is seen as justified by Ocado's scalable technology platform and potential for new international partnerships, which could re accelerate top line growth if execution improves.
• Supporters highlight progress in operational efficiency and automation as key levers for margin expansion over time, supporting the view that earnings power has room to catch up with prior growth investments.
• Despite lower targets, bullish analysts view the recent moderation in expectations as creating a more achievable base case. They see this as reducing the risk of future estimate cuts and improving the risk reward asymmetry.

Bearish Takeaways

• Bearish analysts point to the sequential reductions in price targets as evidence that prior revenue and margin expectations were too ambitious. This raises questions about the pace at which Ocado can translate its technology into profitable growth.
• Concerns persist that execution risk around new customer wins and ramp up timelines may cap near term valuation, with slower than expected site rollouts potentially weighing on both sales visibility and investor confidence.
• The reliance on a still elevated future P E multiple leaves the valuation sensitive to any disappointments in contract signings or customer performance. This is seen as increasing downside risk if growth trajectories normalize further.
• Some remain cautious that Ocado's capital intensity and long payback periods could constrain free cash flow generation, limiting the scope for re rating until the business demonstrates more consistent profitability.

What's in the News

• Ocado and Kroger agreed a one off $350 million cash payment to compensate Ocado for Kroger's decision to optimise its Customer Fulfilment Centre network, including the closure of three CFCs in January 2026 and cancellation of the planned Charlotte, North Carolina site. (Key Developments)
• The partners confirmed they will continue collaborating across five live CFCs in Monroe, Dallas, Atlanta, Denver, and Detroit, where Ocado teams remain embedded to support operational efficiency and volume growth. (Key Developments)
• Rollout of Ocado's Re:imagined products is progressing across Kroger's fulfilment network, driving higher productivity and capacity, with additional capacity ordered for the Detroit site for use in 2026. (Key Developments)
• Ocado's new AutoFreezer technology is set to be deployed for the first time in Kroger's upcoming Phoenix, Arizona CFC, marking a key milestone in the partnership's technology roadmap. (Key Developments)

Valuation Changes

• Fair Value, expressed as a multiple of current metrics, has fallen modestly from 2.72x to 2.57x, reflecting slightly more conservative long term assumptions.
• Discount Rate has decreased from 9.34 percent to 8.64 percent, signalling a somewhat lower perceived risk profile or cost of capital in the updated model.
• Revenue Growth expectations have been trimmed from about 8.01 percent to 7.15 percent, indicating a moderate reduction in the projected top line trajectory.
• Net Profit Margin remains effectively unchanged at around 2.22 percent, suggesting limited revisions to medium term profitability assumptions.
• Future P E, used to value Ocado's earnings potential, has eased from roughly 81.0x to 77.1x, implying a slightly lower valuation multiple applied to forecast earnings.