On Thursday, Evercore ISI maintained its Outperform rating and $32.00 price target for Toast Inc. (NYSE:TOST), a company specializing in restaurant management software. The firm expressed increased confidence in Toast's ability to expand its market share and significantly grow its EBITDA margin following the company's first investor day.
Despite a 7% decline in Toast's stock price on Thursday, which was attributed to a medium-term outlook that may have disappointed some investors, Evercore ISI sees potential underestimation in the company's financial projections. The firm highlighted several factors that could positively influence Toast's performance, including a sizeable and expanding market, enhanced monetization efforts, and innovations driven by artificial intelligence and data.
Toast has set a goal of achieving at least 20% annual growth in recurring gross profit through 2027. While Evercore ISI notes that the consensus estimates for 2027 might not be entirely clear, their projections for 2024-26 suggest a 29% compound annual growth rate (CAGR) in recurring gross profit, slightly ahead of the consensus.
In terms of adjusted EBITDA margin as a percentage of recurring gross profit, Toast has guided towards a target of 30-35% by 2026-27. Evercore ISI's expectations for 2025 and 2026 are notably higher than consensus, predicting adjusted EBITDA margins of 33% and 40% respectively, compared to the consensus of 24% and 33%. The firm's adjusted EBITDA estimates for 2024-26 are 19%, 44%, and 29% higher than the market consensus.
Looking to the long term, Toast aims to achieve an adjusted EBITDA margin above 40%. Evercore ISI reaffirmed its Outperform rating and $32 price target, basing this valuation on a 10x multiple of the company's estimated 2025 enterprise value to recurring gross profit.
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