Last Update 18 Dec 25

Fair value Decreased 5.24%

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.

Overestimated international licensing and automation demand, along with rising competition, could limit Ocado's revenue growth, margin expansion, and cash generation.
Persistent R&D costs and evolving market risks may constrain profitability, while competitive pressures and regulatory challenges threaten valuation and long-term growth.
Ocado's focus on automation, global partnerships, and a shift to recurring revenue models strengthens profitability prospects and competitive positioning in the expanding online grocery market.

Catalysts

About Ocado Group

Operates as an online grocery retailer in the United Kingdom and internationally.What are the underlying business or industry changes driving this perspective?

The market may be overpricing Ocado's ability to sustain and expand its high-margin, recurring revenue growth from international licensing as exclusivity agreements roll off; with the imminent shift to a multi-client environment, intensified competition and slower-than-expected customer adoption could dampen anticipated revenue growth and cash generation.
Expectations of sustained demand for large-scale automated fulfilment solutions may be too optimistic as labor cost advantages diminish in certain markets and potential clients increasingly opt for lower-cost/hybrid automation or in-house solutions, pressuring Ocado's margin expansion and capital returns.
Despite operational efficiencies and cost savings, the belief that Ocado will rapidly achieve and maintain long-term profitability may overlook ongoing fixed R&D and technology spending requirements, especially as customization for new geographies and product variants increases, risking weaker net margins and lower earnings than modeled.
The assumption that the global online grocery market will continue its accelerated trajectory may not fully account for macro risks such as regulatory headwinds (data privacy, sustainability mandates), changing consumer behavior, and the possibility of a plateau in home delivery demand, constraining long-run addressable markets and revenue upside.
Valuation may be detached from Ocado's competitive realities, with investors underestimating margin pressure and customer churn risks as larger grocers increasingly adopt in-house or competitor solutions, compressing contract values, elevating customer acquisition costs, and ultimately weighing on top-line and bottom-line growth.

Ocado Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Ocado Group's revenue will grow by 8.3% annually over the next 3 years.
Analysts are not forecasting that Ocado Group will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ocado Group's profit margin will increase from -26.7% to the average GB Consumer Retailing industry of 2.3% in 3 years.
If Ocado Group's profit margin were to converge on the industry average, you could expect earnings to reach £37.1 million (and earnings per share of £0.04) by about August 2028, up from £-344.9 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 91.2x on those 2028 earnings, up from -8.6x today. This future PE is greater than the current PE for the GB Consumer Retailing industry at 16.7x.
Analysts expect the number of shares outstanding to grow by 0.63% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.92%, as per the Simply Wall St company report.

Ocado Group Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Accelerated global adoption of online grocery shopping and rising demand for automated fulfilment solutions position Ocado as a critical enabler for retailers, supporting significant top-line growth and revenue visibility due to strong secular market tailwinds.
Ocado's expanding Technology Solutions business is experiencing robust double-digit recurring revenue growth, driven by increased partner volumes across its platform and successful international deployments-suggesting underlying momentum that may drive future earnings and margin expansion.
The transition to a more disciplined, cash-flow-positive, and asset-light business model-with recurring service revenues, reduced CapEx, and improved cost control-enhances financial flexibility, improves net margins, and supports a path toward sustainable profitability.
Rolling off partner exclusivity agreements opens the opportunity for Ocado to significantly expand its addressable market, pursue multi-client deals in key geographies, and leverage its operational expertise-potentially driving an increase in pipeline, contract wins, and long-term recurring revenues.
Continuous investments in proprietary automation, robotics, and AI have resulted in marked improvements in productivity, site utilization, and client satisfaction, differentiating Ocado's solutions and increasing its competitiveness-supporting future revenue growth and greater operational leverage.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of £3.198 for Ocado Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £4.37, and the most bearish reporting a price target of just £2.1.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £1.6 billion, earnings will come to £37.1 million, and it would be trading on a PE ratio of 91.2x, assuming you use a discount rate of 7.9%.
Given the current share price of £3.58, the analyst price target of £3.2 is 11.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analyst Commentary Highlights Mixed Outlook and Valuation Adjustments for Ocado Group