Ocado rallies as JPMorgan hikes price target, says several catalysts ahead

(Sharecast News) - Ocado surged on Tuesday as JPMorgan upped its price target on the stock to 460p from 290p and reiterated its 'overweight' rating, saying that operational momentum continues to build and there are several catalysts ahead.

"We continue to be excited about the Ocado investment case given ongoing momentum in the turn-around story with several drivers for a sustained re-rating from here," the bank said. It argued that the pipeline of five new customer fulfilment centre ramp-ups scheduled for 2027-2029 is largely de-risked, providing visibility into Technology Solutions revenue growth.

"Coupled with stringent cost management, we project a group EBITDA compound annual growth rate of 21% for 2025-2028E," it said. "As such, management remains highly confident of achieving underlying free cash flow break-even by H226, an important milestone for the market."

JPM also noted that the Ocado Retail operations, a joint venture with Marks & Spencer, have emerged as the fastest-growing UK retailer, with a 15% revenue increase in the first half, and with margin expansion as well as further capacity additions.

The bank pointed to a now solid balance sheet with no material refinancing requirements over the next three years, and a strong catalyst pipeline into the fourth quarter, with upcoming capital markets days at Kroger and M&S likely to reinforce an accelerating strategic pivot toward online grocery.

JPM said current in-store picking solutions are increasingly operationally and economically sub-optimal at scale, supporting greater receptivity to automated fulfilment and Ocado's product pipeline.

Reflecting higher conviction in module additions from existing clients, JPM said it no longer assumes further site closures in its price target.

The new PT still only ascribes value to what Ocado has already contracted and assumes broadly no incremental modules, JPM said, adding that this was conservative given the potential for further module signings from both existing partners and new customers.

At 1230 BST, Ocado shares were up 6.4% at 337.60p.