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Investing.com - JPMorgan has reduced its price target on Ocado (LON:OCDO) stock to GBP3.56 from GBP4.37 while maintaining an Overweight rating, following concerns about its partnership with Kroger. The stock, currently trading near its 52-week low of $2.83, has seen a sharp 34% decline over the past year. InvestingPro data shows the company’s financial health score is currently rated as ’FAIR’, with particularly strong metrics in cash flow and relative value.
The price target cut comes after Kroger emphasized a shift toward rapid delivery, which put pressure on Ocado’s share price and erased all gains made since mid-July. JPMorgan now assumes Kroger will exit three of its ten Customer Fulfillment Centers (CFCs) with Ocado, though it does not anticipate a complete termination of the partnership. With a current ratio of 2.09, Ocado maintains strong liquidity to weather near-term challenges.
As a result of these assumptions, JPMorgan has lowered its 2027 module forecast by 14 units, from 151 to 137, leading to a 7% reduction in EBITDA estimates for both 2026 and 2027. The firm notes this reduction in EBITDA is only partially offset by lower capital expenditures.
The revised outlook could put at risk Ocado management’s guidance for positive free cash flow by fiscal year 2027. While JPMorgan sees limited refinancing needs over the next two years, it believes refinancing of approximately £1,080 million from 2028 onward appears inevitable.
Despite recent negative sentiment and share price weakness, JPMorgan maintains that the current pipeline supports its new target price of 356 pence, assuming no further module sales. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available including 8 more ProTips that could help investors make informed decisions about this volatile stock (Beta 2.0).
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