Ocado Group (GB:OCDO) is, like many companies in the UK, battling against cost inflation and decline in consumer spending – but could it be a good buy over the long term?
Don't Miss Our Christmas Offers:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
The company’s falling revenue and profits in its interim results for 2022 painted a picture of challenging times.
But Ocado is looking at these as short-term challenges and expects to hit its guidance numbers for the year.
Why is Ocado’s share price falling?
Ocado Group’s share prices are down by 60% in the last year. The online grocery division, which skyrocketed during the pandemic, is under pressure from the rising costs due to inflation.
In its interim results reported in July 2022, the company posted a 4% decline in revenue. This was mainly due to a fall in retail revenues, which offset the growth in solutions and logistics businesses.
With UK inflation crossing the 10% mark, the retailer is struggling with shrinking profits.
What does Ocado Group do?
Ocado Group is a company specialising in delivery technology, working with Britain’s supermarkets.
Founded in 2000, the company gained significant traction as it helped retailers transform the grocery shopping experience from brick and mortar to online. Ocado is currently a partner to 11 of the world’s largest retailers for end-to-end software solutions in online grocery.
Through Ocado Retail, which is a joint venture with Marks and Spencer (GB: MKS), the company also operates as an online grocery retailer.
Will the new CEO turnaround things?
Last week, Ocado Retail announced Hannah Gibson as the new chief executive. She was promoted from within the company and has been part of Ocado for the last 10 years, most recently as chief product officer.
The company is expecting to benefit from her vast experience across various segments such as customer, technology, and retail operations.
Ocado Group’s chief executive, said, “I am confident that Hannah is the right leader to deliver on these ambitions, whilst also being able to navigate the nearer-term challenges associated with the macroeconomic environment.”
Analyst’s view
Yesterday, Barclays analyst James Anstead upgraded its rating on Ocado’s stock to Hold, while trimming the target price from 1,500p to 775p.
The bank said, “With retail sales set to improve, balance sheet concerns reduced for the time being, and CFC (customer fulfilment centre) deal flow expectations tempered, we think the balance of upside and downside risks is now more evenly poised.”
Ocado share price forecast
According to TipRanks’ analyst rating consensus, Ocado stock has a Hold rating based on 10 recommendations. It includes three Buy, five Hold, and two sell.
The OCDO target price is 1,326.4p, which represents a 75% change in the price from the current level. The price has a high and a low forecast of 2,900p and 775p, respectively.
Conclusion
The company’s technology solution has good momentum with 58 new customer fulfilment centres (CFCs) committed with global partners. Ocado is expecting each CFC to contribute to recurring cash flow and generate attractive returns.
The company sees cost-of-living challenges as short-lived and believes in its business model to stay profitable over the long term.
