Ocado Shares: JP Morgan Sees Reasons to Be Optimistic

JPMorgan upgraded Ocado (LON: OCDO) from Neutral to Overweight in a note on Thursday, raising its price target to 400p from 340p. 

The bank highlighted improving margins and a stronger outlook for its Solutions business.

After being Neutral or Underweight on Ocado since 2018, JPMorgan analysts now see several positive developments that justify a more optimistic stance. 

“Many of our previous concerns are beginning to dissipate,” the bank stated.

One key reason for the upgrade is potential new deals in Ocado’s Solutions division. 

JPMorgan’s analysis of the global eGrocery market suggests that demand for online grocery shopping remains strong, but adoption has been slowed by supply constraints rather than consumer reluctance. 

“Supermarkets have been hesitant to run both offline and online channels simultaneously, focusing instead on margin protection and relying on far less efficient store-picking solutions to support online sales,” JPMorgan explained. 

However, with online-only grocers and major players like Walmart gaining market share, the bank feels that traditional supermarkets may increasingly seek scalable solutions like Ocado’s automation technology.

Additionally, Ocado’s margins are said to be improving quickly in both Retail and Solutions, leading JPMorgan to forecast positive free cash flow generation by the end of 2026.

They believe this should help the company refinance around £500 million in Convertible Bonds in 2025/26, strengthening its financial position.