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On Monday, DA Davidson sustained a positive outlook on shares of Toast Inc. (NYSE: TOST), maintaining a Buy rating and a $32.00 price target for the company's stock. The firm's stance comes after Toast, a provider of restaurant management and payment processing solutions, disclosed a recent transaction involving a warrant repurchase.
Toast reported that on July 3rd, it had bought back a warrant, which granted the right to acquire roughly 5.2 million shares of the company's Class B common stock at $17.50 per share. This transaction was executed for $60 million in cash. The warrant repurchase reflects the company's proactive approach to capital management.
The company's solid financial position was highlighted, noting that as of the end of the second quarter of 2024, Toast had $1.12 billion in unrestricted cash and equivalents. This strong cash reserve is noteworthy as it has been achieved without the company incurring any debt.
The financial flexibility that Toast possesses allows it to continue investing in its business operations. It also enables the company to repurchase shares and warrants, and to consider complementary acquisitions that could enhance its market position and offerings.
DA Davidson's maintained price target of $32.00 is based on an estimated enterprise value of 38 times the projected adjusted EBITDA of $444 million for the year 2025. This valuation also corresponds to 26 times the forecasted adjusted EBITDA for 2026, indicating confidence in the company's growth trajectory and profitability prospects.
In other recent news, Toast Inc. has been the subject of several analyst ratings and projections. RBC Capital Markets maintained its "Sector Perform" rating with a target of $27.00, underlining the company's strategic initiatives aimed at achieving more than 20% recurring gross profit growth annually and an adjusted EBITDA margin of 30–35%.
Similarly, Baird Equity Research and Keefe, Bruyette & Woods, Inc. issued positive ratings, with price targets of $28 and $25 respectively.
Morgan Stanley reaffirmed its confidence in Toast with an Overweight rating and a $29.00 price target, citing the company's potential for expanding its total addressable market and robust growth vectors. Piper Sandler reiterated a Neutral rating on Toast, maintaining a $25.00 price target, while Needham maintained a Buy rating on Toast with a steady price target of $30.00.
These recent developments highlight Toast's growth strategies, including scaling locations in its core restaurant market, expanding its total addressable market, increasing software Average Revenue Per User (ARPU), and improving Fintech take-rate.
The company's ambitious financial targets and strategic growth initiatives have drawn attention from various analyst firms, underscoring the company's potential in the restaurant technology sector.
InvestingPro Insights
With the recent positive outlook from DA Davidson on Toast Inc. (NYSE: TOST), it's valuable to consider additional insights from InvestingPro that may provide investors with a broader understanding of the company's potential.
Toast's market capitalization stands at $14.25 billion, and while the company has demonstrated strong revenue growth of 36.68% over the last twelve months as of Q1 2024, it is important to note that the company is not currently profitable, with a negative P/E ratio of -55.77. Still, analysts predict that Toast will be profitable this year, aligning with DA Davidson's confidence in the company's future performance.
Investors should also be aware that Toast's stock price has experienced significant growth, with a 37.66% price total return over the past six months and a 40.53% return year-to-date as of 2024. This aligns with the InvestingPro Tip that the stock has seen a strong return over the last month. Moreover, the company's liquid assets exceed its short-term obligations, providing financial stability and the ability to manage capital effectively, as evidenced by the recent warrant repurchase.
For those looking for more in-depth analysis and additional InvestingPro Tips on Toast Inc., they can find a total of 11 tips on the platform, including insights on earnings revisions and stock volatility. Interested readers can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to gain access to these valuable resources.
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