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On Thursday, Keefe, Bruyette & Woods analyst Sanjay Sakrani increased the price target for Toast Inc. (NYSE:TOST) shares to $42.00, up from the previous $40.00, while maintaining a Market Perform rating. Sakrani’s decision follows Toast’s fourth-quarter earnings release, which prompted an upward revision of the company’s expected earnings per share (EPS) for the years 2025 and 2026. The new EPS forecasts are $0.27, up from $0.25, and $0.55, up from $0.53, respectively.
In his commentary, Sakrani noted that Toast’s recent quarter showed a generally positive trend, with better-than-anticipated outcomes from fintech pricing adjustments and a strong conversion of subscription Annual Recurring Revenue (ARR) to revenue. The company has maintained strong revenue growth of 28.33% over the last twelve months, though InvestingPro analysis indicates it suffers from relatively weak gross profit margins at 24.09%. These factors are expected to act as tailwinds in the first half of the next year and then level off in the second half. The analyst also highlighted that the outlook for 2025 appears more promising than initially expected, with stable growth in new location additions and adjusted EBITDA margins that are trending better than preliminary estimates.
Sakrani’s analysis suggests that Toast’s management has been successful in balancing operating leverage with strategic investments in key areas. This balance is reflected in the improved financial metrics and the positive outlook for the company’s future performance.
Despite the positive quarter and outlook, Sakrani pointed out that the valuation of Toast’s stock seems quite full. The adjusted price target of $42 is based on a 34x EV/EBITDA multiple on the firm’s projected adjusted EBITDA for 2026. This assessment aligns with InvestingPro’s Fair Value analysis, which suggests the stock is slightly overvalued at current levels, despite its strong liquidity position with a current ratio of 2.44. The analyst believes that while the financial results are solid enough for the stock to maintain its current level, the market has already priced in much of the company’s potential growth. For deeper insights into Toast’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
In other recent news, Toast Inc. reported its fourth-quarter 2024 earnings, showcasing a mixed financial performance. The company missed earnings per share (EPS) forecasts, posting $0.05 against an expected $0.17, but exceeded revenue expectations with $1.34 billion compared to the forecasted $1.31 billion. Toast also achieved its first full year of GAAP profitability and added a record 28,000 net locations in 2024. Following these results, several analyst firms adjusted their outlooks for Toast. Keefe, Bruyette & Woods raised their price target to $42, maintaining a Market Perform rating, while Canaccord Genuity increased their target to $48, reiterating a Buy rating. BMO Capital Markets also raised their price target to $48, citing strong fourth-quarter trends and maintaining an Outperform rating. Analysts highlighted Toast’s impressive location growth and expanding opportunities in various sectors, despite noting that the stock’s valuation seems quite full. These developments reflect confidence in Toast’s ability to continue thriving in the restaurant technology and payments market.
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