M&S deal could see Ocado shares soar ahead of Q3 earnings

• Ocado set to unveil third quarter (Q3) earnings on 15 September
• M&S joint venture could see Ocado sales exceed £2 billion, says Credit Suisse
• Ocado well-positioned to see its share price move to higher highs

Ocado is likely to see its shares climb higher ahead of its Q3 earnings on Tuesday 15 September, after analysts from Credit Suisse explained how the company’s joint venture with Marks & Spencer (M&S) could generate more than £2 billion in sales.

Investors will be eager for an update on its M&S partnership and its overall performance amid challenging market conditions for British grocers.

But despite myriad of headwinds, Ocado stock has performed comparatively well, with it up 4% on Monday to £23.57 per share at the time of publication and up 86% year-to-date.

Ocado likely to exceed analysts expectations, says Credit Suisse

Analysts at the Swiss investment bank expect Ocado to see sales increase by as much 66% over the last three months to deliver more than £600 million in revenue.

Its analysts also believe that the online grocery delivery company will exceed the expectations of many City insiders when it unveils its Q3 results on Tuesday and prove its critics wrong for doubting its ability to handle high levels of demand amid the coronavirus pandemic.

Ocado admittedly did struggle to cope with increased demand for online grocery shopping during the lockdown, with sales climbing 44%. However, analysts at Credit Suisse assured investors that the company has since addressed some of its ‘capacity concerns’.

The Swiss investment bank also warned investors that, despite its share price soaring in recent months, the stock may be overvalued due to investors ‘overestimating’ the number of partnerships it has in the pipeline for its global solutions business, whereby retailers license its technology platform to assist with their online sales.

Citi buys ‘strategic rationale’ of Ocado-M&S tie-up

Earlier this month, analysts from Citi expressed their optimism for the launch of Ocado Retail, the name of its joint venture with M&S.

So confident are they that the launch will be a success, analysts from the US-based investment bank lifted their target price for M&S to 120p per share, implying a potential upside for the stock of 14%.

Citi told investors that it believes in the ‘strategic rationale’ of the partnership and said that Ocado Retail will ‘allow a wider range of customers to reappraise the M&S offer in terms of breadth of range, relative price and quality in addition to delivering volume synergies’.

M&S is trading at 105p per share at the time of publication, with the stock down 51% year-to-date.

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