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Ocado downgraded by Bank of America Merrill Lynch as it enters execution phase of Kroger deal

Analysts said that the next few years for the FTSE 250-online grocer would be about “delivering results and validating the economics rather than signing new partnerships"

Ocado delivery
Despite the downgrade, analysts maintained their target price for the stock at 1,020p

Ocado Group PLC (LON:OCDO) has been downgraded to ‘underperform’ from ‘buy’ by Bank of America Merrill Lynch (BAML) as it moved into the long execution phase of its deal with US grocery giant Kroger.

Analysts at the US investment bank said that the next few years for the FTSE 250 online grocer would be about “delivering results and validating the economics rather than signing new partnerships for one or two incremental CFCs (Customer Fulfilment Centre)”.

READ: Ocado shares jump as Goldman Sachs calls its deal with Kroger ‘transformational’

They added: “Ocado’s share price is already factoring in a smooth delivery for Ocado Smart Platform (OSP) and one new country. We thus see little catalysts at this level”.

Shares in Ocado have surged 88% since it announced a partnership deal with US grocery giant Kroger Co (NYSE:KR) in May, having inked similar agreements previously with Sweden’s ICA, French group Casino and Sobeys of Canada.

However, BAML said that the share price bounce from the recent deals was unlikely to continue at the same pace in the coming years, saying that there was a risk that the “share price takes a pause”.

The bank added that shareholders would be unlikely not see any significant benefits from the deal until 2020 at the earliest.

Despite the downgrade, analysts maintained their target price for the stock at 1,020p, saying they had not changed their fundamental view of the grocer.

In late-morning trading Monday, Ocado shares were down 3.2% at 1,006p.

Quick facts: Ocado Group PLC

Price: 2229 GBX

LSE:OCDO
Market: LSE
Market Cap: £16.68 billion
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