On Tuesday, Baird showed confidence in Toast Inc. (NYSE:TOST) by raising its stock price target to $28 from $24, while maintaining an Outperform rating on the company's stock. The firm's optimism stems from expectations of a positive first-quarter performance and a robust growth outlook for the restaurant management platform provider.
The firm pointed out several reasons for their positive stance on Toast Inc. First, the company provided guidance for the first quarter and the full year of 2024 after weathering tough conditions in January, which saw a recovery in restaurant activity in February and March.
Second, the potential for higher yields was noted, as the mix of debit transactions at banks appeared favorable in the first quarter. Additionally, the possibility of Toast Inc. being able to negotiate better processing costs could further improve financial performance.
Baird also highlighted the company's strong incremental margins, suggesting that the guidance for 2024 might be conservative. This is particularly relevant considering the company's guidance assumes lower incremental margins than what was achieved in the second half of 2023, despite the company having announced job cuts which typically aim to reduce costs and improve profitability.
The analyst's comments reflected an overall positive outlook, indicating that the factors mentioned could contribute to a better than expected performance in the upcoming quarterly report. "We like the stock a lot and expect a good Q1 beat/raise," said the analyst from Baird. "We like the very strong growth profile," they added, emphasizing the company's resilience and financial strategies that could lead to a successful first quarter.
InvestingPro Insights
As Baird raises its price target for Toast Inc. (NYSE:TOST), real-time data from InvestingPro reinforces the firm's positive outlook. With a significant revenue growth of 41.52% over the last twelve months as of Q4 2023, Toast Inc. is demonstrating a robust growth trajectory.
This is coupled with a notable 34.9% quarterly revenue growth in Q1 2024, which may be indicative of the company's strong performance as anticipated by Baird. Additionally, the company's liquid assets exceed its short-term obligations, providing financial flexibility and stability.
InvestingPro Tips highlight that while Toast Inc. has been grappling with weak gross profit margins, which stood at 21.71% in the last twelve months as of Q4 2023, analysts are optimistic about the company's profitability in the upcoming year.
This is underlined by a strong return over the last three months, with a 33.93% price total return, signaling investor confidence in the company's growth potential. It's worth noting that Toast Inc. is trading at a high Price / Book multiple of 10.33, reflecting market expectations of future growth.
For investors seeking a deeper analysis and more InvestingPro Tips on Toast Inc., they can find a total of 10 tips on the company's profile at https://www.investing.com/pro/TOST. To gain full access to 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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