(Bloomberg) -- An analyst who rooted for Ocado Group Plc for more than two years has reversed his call on the stock, saying the online grocery firm needs to “seriously consider its options” given project delays and liquidity challenges.
Bernstein double downgraded the shares to underperform on Monday, sending the shares down as much as 14% on the eve of Ocado’s latest earnings release. The broker had held an outperform rating since March 2022, during which time the shares had fallen by about two thirds.
For analyst William Woods, the key issue is slow take-up for Ocado’s automated warehouses, as its plans to roll out facilities with Kroger Co. and others encounter delays. Demand for grocery shopping online has been weaker since the end of the pandemic, and retailers prefer to fulfill online orders in-house, rather than investing in centralized warehouses.
Beyond that, Ocado faces “increased and significant” liquidity challenges, the analyst said. The company probably needs to refinance £1.4 billion ($1.8 billion) of debt due January 2027 while raising new funds, he said.
“We think the business needs to take a serious look at its options,” which includes considering whether it is “right to be a public equity,” Woods said in a note. Without a take-private deal, the company may have to cut tech investments and “consider a drastic reduction in activity,” he said.
A spokesperson for Ocado declined to comment.
Analyst projections on Ocado vary, with the most bullish broker expecting the shares to rise almost ninefold from current levels. Six of the 17 analysts that Bloomberg tracks have a sell-equivalent rating on the stock, with the most bearish one projecting declines of 36%.
(Updates with further analyst commentary starting in fourth paragraph, company response in sixth.)
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