On Monday, Evercore ISI initiated coverage on shares of Toast Inc. (NYSE:TOST), a provider of restaurant management and payment platforms, with an Outperform rating and a $32.00 price target. The firm views Toast as a leading entity within the small to medium-sized business (SMB) restaurant management sector, citing its consistent market share gains, ongoing innovation, and extensive distribution network.
Toast's dedication to addressing the specific challenges of restaurant management allows it to stand out against competitors, both established and emerging. According to a proprietary survey conducted by Evercore ISI, which included 237 restaurants, Toast ranked second, surpassing other platforms like Square and Clover.
The analysis also forecasts a significant expansion in Toast's core adjusted EBITDA margin, projecting a 30 percentage point increase from 2023 through 2026. Evercore ISI's estimates for adjusted EBITDA from 2024 to 2026 are 31%, 40%, and 39% higher than the consensus, driven by factors such as increasing market share, rising pricing, broader adoption of software solutions, and the financial offerings of Toast Capital.
The firm's assessment of Toast's valuation at 8 times its 2025 estimated enterprise value to gross profit (EV/Gross Profit) aligns with historical averages and those of its peers. The price target of $32 is based on a 10 times multiple of the projected 2025 EV/Gross Profit, which also equates to 32 times the estimated 2025 EV/EBITDA. This valuation reflects not only Toast's impressive growth prospects but also a favorable macroeconomic outlook anticipated for 2025.
InvestingPro Insights
As Toast Inc. (NYSE:TOST) gains attention with its Outperform rating from Evercore ISI, insights from InvestingPro enhance the perspective on the company's financial health and future expectations. Toast's market capitalization stands at a robust $12.81 billion, reflecting investor confidence in its business model and growth trajectory. Despite a challenging gross profit margin of 21.71%, the firm has achieved a remarkable 41.52% revenue growth over the last twelve months as of Q4 2023, indicating a strong demand for its restaurant management solutions.
InvestingPro Tips suggest that analysts are optimistic about Toast's future, with net income expected to grow this year and two analysts having revised their earnings upwards for the upcoming period. This aligns with Evercore ISI's projection of a significant increase in Toast's core adjusted EBITDA margin. Additionally, Toast has demonstrated a significant return over the last month, with a 25.23% increase, showcasing the stock's potential for short-term gains.
While the company does not pay dividends, which may influence some investment decisions, the positive outlook is bolstered by the fact that liquid assets exceed short-term obligations, providing financial stability. Toast's stock price movements are recognized for their volatility, a factor that traders might leverage to their advantage. Investors interested in deeper analysis can explore additional InvestingPro Tips for Toast Inc. by visiting https://www.investing.com/pro/TOST. There are 11 more tips available, offering a comprehensive view of the company's financial and market performance. To access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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