Key Morningstar Metrics for Ocado Group
- : GBX 227Fair Value Estimate
- : ★★★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : Very HighMorningstar Uncertainty Rating
Ocado’s OCDO first-half fiscal results included revenue growth of 1% and an adjusted EBITDA decline of 11%, both excluding Kroger and Sobeys closure impacts. Shares fell nearly 20% intraday on July 16.
Why it matters: While results fell short of our expectations, we still think Ocado can meet its unchanged full-year targets, thanks to cost-saving initiatives. However, Ocado’s new-deal momentum has been weaker than expected since the end of market exclusivity, making us uncertain about medium-term recurring revenue growth.
- Ocado is rolling out its strategy to implement less capital-intensive solutions compared with the end-to-end CFC networks, including in-store fulfillment and micro fulfillment centers. We think this direction is critical to securing Ocado’s future growth; however, competition is intense.
The bottom line: We lower our fair value estimate to GBX 227 per share from GBX 259, primarily due to changes to our weighted average cost of capital framework. The change reflects a more granular representation of our existing risk assessment.
- We have also lowered our module growth assumptions, now expecting 123 by the end of 2027, which is more in line with guidance.
- Despite the fair value cut, we continue to view shares as undervalued. We see investor concern over whether Ocado can make up for lost recurring revenue with the North American site closures. While it is still early days, we think Ocado’s shift in commercial offering can drive long-term growth if executed well.
