Ocado Group PLC (LON:OCDO) has been removed from the Goldman Sachs ‘buy list’ following the stock’s material outperformance.
Shares in the online grocer have risen 135% since announcing deals with France’s Groupe Casino in November 2017 and with Canada’s Sobeys in January 2018 to provide the supermarkets with its e-commerce platform.
READ: Ocado sees first-quarter retail revenue grow in line with guidance though impacted by wintry weather
Goldman downgraded the company to ‘neutral’ and left its target price at 540p, saying: “While we believe there is a material opportunity for Ocado in the online grocery space, our target price already includes seven further OSP (Ocado Smart Platform) deals to be signed over the next 10 years of a similar size to those two.”
It added: “We are still fundamentally positive on the cash generation of Ocado’s core grocery model and the size of the opportunity that grocery’s shift online represents for Ocado’s Smart Platform, but we believe a lot of this is now reflected in the current share price.”
Shares in Ocado fell 1.6% to 559p in morning trading.
Ocado needs to secure more deals, says Goldman
The bank said it only sees further upside to the shares in the next 12 months through the announcement of another agreement with a major grocer or a takeover bid.
In a trading update on Tuesday, Ocado said it remains confident of signing further deals for its proprietary technology.
The company reported an 11.7% increase in retail revenue to £363.4mln for the first quarter to March 4, which was in line with the lower end of its guidance range. However, the final week of the period was affected by heavy snow and winter storms.
Goldman said the first quarter results met its expectations and its forecasts for revenues and earnings were little changed.
For fiscal year 2018, it predicts revenue of £1.6bn and earnings per share of 2.87p.
Goldman also warned “there are heightened execution risks” to the company’s plans to ramp up its new customer fulfilment centre in Andover (CFC3) and open its latest facility (CFC4) in Erith in the middle of this year.