Ocado Group PLC (LSE:OCDO) shares jumped 12% after its shares were upgraded by JPMorgan, which sees a "turning tide" in online grocery orders.
The US bank upped its rating to ‘overweight’ from ‘neutral’, the first positive rating on the FTSE 250 group since 2018 as it sees it "now at an inflection point".
Analysts said they are revisiting the investment case and identify "several reasons to be more optimistic".
This is because many of their previous concerns are beginning to dissipate, including a "rising possibility of new deals" for the Ocado Solutions operations, according to recent analysis of the global eGrocery space.
"We argue that the slow adoption of online grocery shopping so far hasn't been demand-driven (evidenced by strong customer reviews) - instead, we attribute the stagnation in recent years to ongoing supply constraints.
"Supermarkets have been hesitant to run both offline and online channels simultaneously, focusing instead on margin protection and relying on far less efficient store-picking solutions to support online sales.
"This approach might work in the short term as long as online sales remain small. However, given the high costs when utilizing store-picking solutions, we believe this is unsustainable longer term as online sales grow."
It was noted that online-only supermarkets in Europe and Walmart in the US are increasingly gaining market share, "pushing more traditional supermarkets to find scalable solutions (such as Ocado)."
Ocado's margins are also improving, driving expectations of positive free cash flow by the end of 2026.
With the shares having dropped the valuation is now "attractive", with a new share price target set at 400p based on updated forecasts.