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Tuesday, Evercore ISI initiated coverage on shares of Toast Inc. (NYSE:TOST) with an In Line rating and established a price target of $29.00, falling within the broader analyst target range of $26.40 to $60.00. The research firm recognized Toast for its achievements in the small to medium-sized business (SMB) restaurant sector and anticipates the company will continue to find success as it explores new opportunities for growth. According to InvestingPro data, Toast has demonstrated strong revenue growth of 28.33% over the last twelve months, with a current market capitalization of $17.65 billion.
Despite the positive outlook on the company's capabilities, Evercore ISI expressed concerns about the near-term challenges Toast faces. These include the addition of new locations and a slowdown in average revenue per user (ARPU), which lead to questions about the sustainability of the company's valuation. The valuation concerns appear justified, as InvestingPro data shows Toast trading at a remarkable P/E ratio of 1,251, with the stock experiencing a significant 10.39% decline over the past week. The firm also noted the impact of the current tariff crisis and the potential for a recession, which could result in higher churn rates and reduced consumer spending, posing significant risks to consensus estimates.
The analyst commented on the company’s position in the market, stating that the company's stock valuation was still at a significant premium compared to its peers. Even if the tariff crisis is resolved and normal market and economic activities resume swiftly, there is skepticism about whether the company's performance can meet the high expectations reflected in its valuation. The recent outlooks for the U.S. restaurant market in the first quarter have been challenging, with net payment-related revenues accounting for 49% of the total, indicating a tough environment for the industry.
Furthermore, Evercore ISI pointed out that while Toast is seeking new growth avenues, these efforts could take time to mature and may initially contribute to dilutive levels of annual recurring revenue (ARR) and ARPU. The firm suggested that the current valuation and the stock's relative resilience compared to other non-network stocks in its group might not present the most opportune moment for investment.
In summary, Evercore ISI is adopting a cautious stance on Toast Inc., suggesting that potential investors should consider waiting for a more favorable entry point into the stock, given the array of challenges and uncertainties that lie ahead.
In other recent news, Toast Inc. reported fourth-quarter earnings that exceeded DA Davidson's expectations, with total revenue 2% higher and adjusted EBITDA 16% above forecasts. Following these results, DA Davidson raised its price target for Toast from $38 to $42 while maintaining a Neutral rating. Toast also shared its initial 2025 outlook, projecting a 23%-25% year-over-year growth in Non-GAAP FinTech & Subscription gross profit and a 37%-42% increase in adjusted EBITDA. Meanwhile, UBS analyst Tim Chiodo reaffirmed a Buy rating and a $47 price target, highlighting Toast's potential to capture a significant share of new restaurant cloud POS locations in the U.S. by 2025. Piper Sandler maintained a Neutral rating with a $35 target, acknowledging Toast's strong growth and profitability. The firm anticipates further investments in international markets and enterprise adoption, with projected improvements in EBITDA margins. Bernstein analysts noted potential challenges for Toast in a recession scenario, forecasting high single-digit negative revisions on gross profit and double-digit EPS revisions. These developments underscore the varied perspectives on Toast's future performance amidst its recent financial achievements.
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