Toast: Investor Day Doesn’t Alter Our Long-Term Expectations; Shares Fairly Valued After Correction

Narrow-moat Toast's investor day shed light on its growth priorities but largely served to reaffirm our projections for the restaurant technology firm, with minimal impact to our outlook. Management's target for 30%-35% adjusted EBITDA as a percentage of recurring gross profit in 2026 and 2027 roughly aligns with our estimates of 33% and 38%, respectively, while the longer-term expectation of a 40% or higher margin is consistent with our projections thereafter. Elsewhere, our forecast for 24% growth in recurring gross profit over the next five years meshes well with the company's target of 20% or more annual growth. As such, we don't plan to alter our $23.50 fair value estimate. Following a 7% drop in May 29 trading, we see shares are fairly valued and attribute the decline to unduly lofty investor expectations. We remain optimistic about the restaurant technology leader's prospects, maintaining particular excitement about the firm's efforts to leverage its extensive database of payment and software touchpoints to enhance efficiency for restaurateurs amid a challenging industry environment.