Ocado (LON: OCDO) shares fell around 0.8% Thursday, closing the session at 512.8p after the company was initiated with a Hold rating and 550p price target by Deutsche Bank analyst Nooshin Nejati.
The online supermarket firm, which said Tuesday that it is planning to close its Hatfield warehouse, putting about 2,300 jobs at risk, has had a tough year so far, down over 17%.
However, the company was described by Nejati as having evolved from a pure online grocery player to a prime technology provider to some of the leading grocers worldwide.
Ocado is using its “retail division to showcase its strength in technology solutions for potential third party supermarket customers wanting to automate their operations,” the analyst wrote.
He added that with its “best-in-class technology,” OCDO is “rising penetration rates of online grocery shopping and benefits from the need of large supermarket chains to automate customer fulfilment centres (CFCs) in order to improve efficiency.”
Even so, the analyst expects the current macroeconomic backdrop to weigh on the retail sector “for a little longer,” and as a result, he sees a balanced risk/reward at current share levels.
Deutsche Bank’s sentiment is shared by Goldman Sachs, with analyst Richard Edwards starting Ocado at Neutral with a 600p per share price target earlier this month, stating it is “cautious on the share price outlook.”
Our View: While we have been bearish on the stock in the not-so-distant past, we are now also cautious. The share price decline over the two or so years and mounting institutional shorts (which have been trimmed in the last week) mean we are on the sidelines.
However, we must point out that demand trends such as Twitter mentions, sentiment, and web traffic have yet to significantly improve in the last month, while we believe inflation will continue to weigh on consumers.
By Sam Boughedda