Last Update 17 Feb 26

Fair value Increased 3.19%

OCDO: Kroger Network Reshaping And Automation Will Support Future Upside Potential

Ocado Group's latest narrative update reflects a revised analyst fair value view that aligns with a lower Street price target of £2.90 per share, as analysts cite adjusted assumptions around revenue growth, discount rates, and future P/E levels.

Analyst Commentary

Recent research, including the revised £2.90 price target from JPMorgan, highlights a mixed but focused view on Ocado Group, with analysts fine tuning expectations around growth, valuation, and execution risk.

Bullish Takeaways

Bullish analysts see the reaffirmed positive rating alongside the lower £2.90 target as a sign that, even with more conservative assumptions, there is still perceived upside relative to where the shares currently trade.
The retained Overweight stance suggests confidence that Ocado's business model can justify a premium P/E in the long run if execution on revenue initiatives and partnerships stays on track.
Supportive views often link the revised target to a more balanced risk reward profile, where adjusted discount rates and future earnings expectations are already reflected in the fair value range.
Some bullish analysts interpret the recalibrated target as housekeeping, with the long term thesis around Ocado's technology platform and fulfilment capabilities still intact within valuation models.

Bearish Takeaways

Bearish analysts focus on the reduction in target price from £3.56 to £2.90 as a signal that prior growth and earnings assumptions may have been too ambitious, increasing scrutiny on future execution.
More cautious views highlight that higher discount rates and tempered P/E expectations compress the valuation headroom, leaving less room for error if revenue growth or margin progress falls short of forecasts.
Some bearish analysts question whether the premium rating is fully justified given uncertainties in the timing and scale of future earnings, which could limit how much investors are willing to pay per share.
The target cut also brings attention to potential downside risk if sentiment weakens further, particularly if new data points lead to another round of revisions in revenue or cash flow assumptions.

What's in the News

Ocado Group and Kroger agreed a one off cash payment of US$350 million to Ocado after Kroger decided to close three customer fulfilment centres in January 2026 and not proceed with a planned site in Charlotte, North Carolina (company announcement).
The two companies plan to continue working together across five live customer fulfilment centres in Monroe, Dallas, Atlanta, Denver, and Detroit, where Ocado teams are embedded in operations (company announcement).
Ocado reports ongoing rollout of its latest Re:imagined products across Kroger's fulfilment network, which the company links to higher productivity and additional network capacity (company announcement).
Capacity at the Detroit customer fulfilment centre has been expanded, with Kroger ordering further capacity planned for use in 2026 (company announcement).
Ocado's AutoFreezer technology is set to feature for the first time in Kroger's upcoming customer fulfilment centre in Phoenix, Arizona (company announcement).

Valuation Changes

Fair value has been revised slightly higher from £2.71 to £2.79 per share, based on updated modelling inputs.
The discount rate has been adjusted marginally from 9.00% to 9.05%, indicating a small change in the assumed cost of capital.
Revenue growth has been revised from 6.48% to 6.62%, reflecting a modest change in projected £ revenue growth assumptions.
The net profit margin is held broadly steady at around 2.44%, with only a very small numerical adjustment.
The future P/E is nudged higher from 75.71x to 77.92x, implying a slightly higher earnings multiple in the updated valuation work.

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