On Thursday, Toast Inc. (NYSE:TOST) received an upgraded stock rating from Mizuho, shifting from Neutral to Outperform. The financial institution also increased the company's price target to $33.00, up from the previous $21.00.
The upgrade is based on the anticipation that Toast Inc., a provider of restaurant software, could become the fourth-largest US retailer/merchant by volume by 2025, with volumes nearing $200 billion.
Mizuho's analysis of recent court documents from a card network settlement indicates that large merchants benefit from significantly lower credit card interchange fees.
Given Toast Inc.'s dedicated focus on the restaurant industry and its market share growth, Mizuho suggests that the company might be able to negotiate similar terms. According to the firm, Toast may currently be overpaying on credit interchange fees by an estimated 25 to 75 basis points when compared to large retailers such as Walmart (NYSE:WMT).
The potential for Toast Inc. to renegotiate its interchange fees presents an opportunity for the company to substantially reduce its credit processing costs over the medium term. This cost-saving prospect is a key factor in Mizuho's positive reassessment of Toast's financial outlook.
The revised price target of $33.00 reflects a significant increase from the former target and highlights the firm's confidence in Toast Inc.'s growth trajectory and ability to improve its cost structure. Mizuho's outlook suggests that by leveraging its position in the restaurant vertical, Toast has a strategic opportunity to enhance its profitability in the coming years.
In other recent news, Toast Inc. has been the subject of various analysts' evaluations. RBC Capital Markets maintained a "Sector Perform" rating with a price target of $27.00, underlining the company's plans to achieve over 20% recurring gross profit growth annually and an adjusted EBITDA margin of 30–35% relative to recurring gross profit.
Similarly, Morgan Stanley reaffirmed its confidence in Toast by maintaining an Overweight rating and a $29.00 price target. The firm highlighted the company's expanding total addressable market and robust growth vectors as key drivers for future performance.
Piper Sandler reiterated a Neutral rating on Toast's stock, maintaining a $25.00 price target, while Needham maintained a Buy rating with a steady price target of $30.00. Both firms noted Toast's ambitious financial targets and strategies for expansion.
The company's growth initiatives include scaling locations in its core restaurant market, expanding its total addressable market, increasing software Average Revenue Per User (ARPU), improving Fintech take-rate, and delivering operating leverage across the organization.
These recent developments denote a bullish sentiment towards Toast's growth trajectory from several analyst firms. Despite some concerns about the company's ambitious financial targets, the general consensus remains positive, with a focus on the company's potential for recurring gross profit growth and improved EBITDA margins.
InvestingPro Insights
In light of Mizuho's optimistic outlook on Toast Inc. (NYSE:TOST), recent data from InvestingPro complements this perspective with additional insights. The company's market capitalization stands at a robust $14.78 billion, and despite a challenging P/E ratio currently at -55.77, analysts are forecasting a favorable turn. With four analysts having revised their earnings upwards for the upcoming period, there is an anticipation of net income growth this year. This aligns with the potential for Toast to renegotiate its interchange fees and thereby improve its financial standing.
From a performance standpoint, Toast has exhibited a significant return over the last week, with a 9.23% price total return, and an even more impressive 53.16% over the last six months. This kind of momentum is indicative of investor confidence and market receptivity to the company's growth strategies. Moreover, Toast's liquid assets surpass its short-term obligations, which underscores a stable financial position that could support strategic initiatives like the renegotiation of credit interchange fees.
For investors seeking a deeper analysis and additional InvestingPro Tips, there are 9 more tips available for Toast Inc. on the InvestingPro platform. To access these insights and enhance your investment strategy, consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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