On Monday, BMO Capital Markets began coverage on shares of Toast Inc. (NYSE:TOST), a company specializing in restaurant technology and payments, assigning an Outperform rating and setting a price target of $45.00.
Currently trading at $37.60 with a market capitalization of $21.4 billion, Toast has garnered attention from analysts, with InvestingPro data showing five analysts recently revising earnings estimates upward. The new coverage is based on the firm's belief that Toast will emerge as a long-term winner in its market due to its comprehensive product suite and an effective go-to-market strategy.
Toast's business model, which offers a broad range of technology solutions for restaurants, has been commended for its potential to drive growth in average revenue per user (ARPU) and improve unit economics. The company has demonstrated strong execution with revenue growth of 29.5% in the last twelve months, though InvestingPro analysis indicates it currently operates with relatively low gross profit margins of 23.4%.
BMO Capital's analysis suggests that current market expectations might underestimate the company's future performance, particularly regarding recurring gross profit per location.
The firm's EBITDA forecasts for 2026 are approximately 5% higher than the consensus, assuming that Toast's unit economics remain broadly stable. This more optimistic view comes despite market expectations which predict a slight decline in the company's location and unit economics.
BMO Capital's initiation of coverage comes after Toast's shares experienced a pullback of around 15%, which the firm considers an attractive entry point for investors. The analyst points out that this pullback, coupled with a conservative EBITDA guidance for 2025, has reduced investment risks.
The price target of $45.00 reflects BMO Capital's confidence in Toast's ability to capitalize on its market position and growth strategy. According to InvestingPro, which rates Toast's overall financial health as "GOOD," the stock appears to be trading above its Fair Value, with analyst targets ranging from $25 to $50. The platform offers 12 additional exclusive ProTips and a comprehensive Pro Research Report for deeper analysis of Toast's investment potential.
In other recent news, a positive shift in sentiment among American small and medium-sized businesses (SMBs) is expected to boost technology investments, according to an RBC analyst. Companies like PayPal (NASDAQ:PYPL), Block Inc., and Toast Inc. are identified as potential beneficiaries of this trend. PayPal, for instance, is expected to improve transaction margins through its efforts in the SMB market, bolstered by a more optimistic environment.
Toast Inc., in collaboration with Uber Technologies (NYSE:UBER), is enhancing delivery options for U.S. restaurants. This extended partnership integrates Toast Delivery Services with Uber Direct, aiming to reduce delivery costs and expand delivery areas for restaurants. However, recent analyst notes reveal mixed sentiments regarding Toast's future.
DA Davidson downgraded the company's stock from Buy to Neutral, citing concerns over margin expansion expectations for 2025. Goldman Sachs also downgraded Toast's stock from Buy to Neutral, albeit with an increased price target.
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