BoA ups price target for Ocado as expansion plans gear up

Bank of America Merrill Lynch has upped its price objective for shares of Ocado, arguing that the online grocer is primed for further expansion.

“Ocado’s playing field has been expanding while proving the uniqueness of its e-commerce solutions,” analyst Xavier Le Mené argued in a note. “We believe it is a question of time before it announces new countries and more customer fulfilment centres within its existing partnerships.”

Le Mené said there were 32 markets around the world which had food sales above $20bn, but Ocado was currently only in seven. “It leaves room for another 25 countries to expand in, in theory,” he argued. “Ocado will moreover continue innovating in immediacy and automatisation.”

Ocado, which recently announced a major new retail partnership with Marks & Spencer, is currently loss-making. Bank of America-Merrill Lynch believes it will break even in 2020 and that 2021 “should be the year of acceleration for the profit stream, with most of the partnerships going live. This is the first meaningful year, in our view, and a better reflection of Ocado’s profit potential in the foreseeable future.”

The bank, which has a ‘buy’ recommendation on the stock, has upped its price objective to 1,630p from 1,020p.