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On Monday, financial firm Baird updated its outlook on Toast Inc. (NYSE: TOST), raising the price target to $30 from the previous $28 while maintaining a Neutral rating on the stock. The adjustment follows the anticipation of a stronger than expected third-quarter performance from the company.
The analyst from Baird expressed a positive view on Toast Inc., acknowledging the company's potential, yet maintained a stance of balanced risk/reward. A more favorable risk/reward ratio would be considered in the range of approximately $22 to $24 per share. The forecast for the third quarter suggests recurring gross profit to be about 2% higher than the market consensus. This is attributed to the financial technology volume, which is expected to align with the Street's predictions. This projection is based on the observation of slightly decelerating third-quarter restaurant data trends.
Financial technology yield is likely to see a boost from minor pricing increases. Moreover, the company's software and services sector is predicted to slightly outperform Street estimates. The analysis also indicates that the third-quarter EBITDA (earnings before interest, taxes, depreciation, and amortization) may surpass expectations, benefiting from reduced employee numbers which have favorably impacted margins.
Looking ahead, Baird anticipates a mild increase in the company's guidance for the year 2024. This adjustment reflects the positive developments projected in the company's financial performance. The updated price target and outlook present a cautiously optimistic view of Toast Inc.'s financial trajectory in the near term.
In other recent news, Toast Inc. has reported robust growth in its second quarter of 2024, exceeding expectations with key financial metrics. The restaurant management platform provider added a record 8,000 net new locations, leading to a 29% year-over-year increase in recurring gross profit streams. Adjusted EBITDA reached $92 million, marking a healthy 27% margin on these profit streams. Following this strong performance, Toast has revised its full-year financial outlook upwards.
The company's recurring gross profit grew by 29% year-over-year to $344 million, and SaaS ARR saw a 35% year-over-year increase. Fintech gross profit also saw a 23% rise in the second quarter, with GPV growing to $40.5 billion, a 26% year-over-year growth. The full-year outlook now anticipates a growth of 27% to 29% in fintech and subscription gross profit, and adjusted EBITDA projections of $285 million to $305 million.
Despite these positive developments, the company experienced a 3% decline in GPV per location in Q2, primarily due to a decrease in same-store sales. However, Toast's core U.S. SMB and mid-market business contributed significantly to the net additions, highlighting potential growth areas. The company also plans to increase investment in key business areas in the second half of the year, maintaining a breakeven on a GAAP basis for the remainder of the year.
InvestingPro Insights
InvestingPro data and tips offer additional context to Baird's analysis of Toast Inc. (NYSE: TOST). The company's market cap stands at $15.93 billion, with a robust revenue of $4.39 billion over the last twelve months as of Q2 2024. Toast has demonstrated impressive growth, with a revenue increase of 32.19% during this period.
An InvestingPro Tip highlights that three analysts have revised their earnings upwards for the upcoming period, aligning with Baird's expectation of a stronger third-quarter performance. This positive sentiment is further supported by another tip suggesting that net income is expected to grow this year.
However, investors should note that Toast currently operates with a negative operating income of $117 million and a gross profit margin of 22.66%, which an InvestingPro Tip describes as "weak." This may explain Baird's cautious Neutral rating despite the raised price target.
The stock's performance has been noteworthy, with a 62.31% price return over the past year. This aligns with an InvestingPro Tip indicating a "high return over the last year." However, potential investors should be aware that the stock price movements are described as "quite volatile."
For those interested in a deeper analysis, InvestingPro offers 7 additional tips for Toast Inc., providing a more comprehensive view of the company's financial health and market position.
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