JPMorgan cut Ocado’s target price to 1,050p from 1,322p and downgraded the stock to ‘underweight’ from ‘neutral’.
Shares in the tech company, which specialises in supermarket home deliveries, have soared 300% rise over the past two years, catapulting it into the FTSE 100, on the back of contracts to run the online solutions for a series of overseas grocery companies, including with US-based Kroger, France’s Casino, Sobeys in Canada and Australia’s Coles.
The share price hit an all-time high of 1,407p per share in April and, although it has retreated a little, JP Morgan said that the current £9bn valuation is “already stretched”.
Ocado’s retail joint venture with Marks & Spencer, in addition to its other online solutions projects already committed, are worth £3.9bn.
“The remaining value is ascribed to potential new signings and suggests that at least 126 more CFCs (customer fulfilment centres) will be contracted, versus the 38 announced so far,” the analysts said in a note to clients.
The analysts said that the gap between the value of Ocado’s contracts and its market valuation means that they “do not see the risk/reward as compelling”, and the “scope for outperformance appears limited”.
This downgrade follows cuts by HSBC, UBS and Jefferies earlier in the year.
Ocado shares had fallen 1% to 1,306p by late on Monday afternoon.