On Wednesday, Baird maintained its Neutral rating on Toast Inc. (NYSE:TOST) with a steady price target of $38.00. Following a presentation by Toast's CFO at a competitor's conference today, the firm adjusted its expectations due to the company's new guidance on future margins. Toast's management anticipates an EBITDA margin expansion of 100-200 basis points, a figure significantly lower than the previously estimated 470 basis points by Baird and other market analysts.
According to InvestingPro data, Toast has demonstrated remarkable market performance with a 180% return over the past year, despite current analysis suggesting the stock is slightly overvalued.
The revised margin projections have led Baird to reduce its estimates, as the anticipated expansion falls short of industry expectations. The company's management has now set a target that would result in approximately $0.05-0.07 less in the expected earnings per share (EPS) for the year 2025.
This update comes as a surprise to Baird, especially considering the stock's notable increase following Toast's third-quarter financial results. InvestingPro data reveals that Toast maintains strong revenue growth of 29.5% and a healthy current ratio of 2.41, though its gross profit margin stands at 23.36%.
Toast's expected incremental EBITDA margins are now forecasted to be in the range of 30-40% after having exceeded 70% in recent quarters. The previously higher margins were partly attributed to one-off factors such as lease terminations and reductions in employee numbers. The new guidance suggests a more conservative growth trajectory for the company's profitability in the coming years.
The financial technology company, which specializes in providing integrated payment processing and point-of-sale systems for restaurants, has experienced volatility in its stock performance. Despite the recent surge in share price, today's announcement from the CFO has provided investors with a more subdued outlook on Toast's financial health moving forward.
Investors and market observers will be closely monitoring Toast's performance to see how the company's revised margin expectations will impact its financial results and stock price in the long term. The current price target by Baird indicates a neutral perspective on the stock's potential for growth under the new financial projections.
In other recent news, Toast Inc. has been making significant strides. After a robust Q3 performance, the company reported substantial growth, adding roughly 7,000 net new locations, reflecting a 28% year-over-year increase, which brought the total to nearly 127,000.
Recurring gross profit streams grew by 35%, with adjusted EBITDA hitting $113 million. In response to these developments, Goldman Sachs downgraded the stock from Buy to Neutral but increased the price target to $45.00, acknowledging the company's success yet signaling a more cautious approach moving forward.
DA Davidson, despite lowering its stock target for Toast Inc. by 20%, maintained a Buy rating due to strong EBITDA growth. Mizuho (NYSE:MFG) Securities increased its price target for Toast from $33.00 to $40.00, maintaining an Outperform rating, reflecting the company's ability to raise its annual recurring non-GAAP Gross Profit forecast from 27-29% to 32-33%.
Alongside financial growth, Toast launched new customer engagement products and expanded into food and beverage retail and international markets, including a partnership with Potbelly (NASDAQ:PBPB) Sandwich Works.
Despite an increase in operational expenditures by 11% due to investments in sales, marketing, and research and development, Toast projects an adjusted EBITDA between $352 million to $362 million for the full year, reflecting a 26% margin.
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